Dear Jami,
I am sharing this story from Canada, which may be more relevant for your context in US. From someone who is relatively new to Canada, this reads like a story hard to believe. But here you go; Canadian history of cooperative insurance.
The story of The Co-operators and co-operative insurance in Canada
Our founders had a dream of building a co-operative insurance company that would stretch from coast to coast and grow to be one of the cornerstones of the co-operative movement in Canada. They were farmers who had lost most of their belongings, their savings and their life insurance during the Great Depression. Their experiences had taught them to distrust conventional businesses, and they built co-operatives as a way to solve their problems and rebuild their lives.
They faced many obstacles: inexperience with the insurance business, few assets, tough competition and a sparsely populated country with people scattered across miles of prairies, farmland, coastal regions and mountain valleys.
The company known today as The Co-operators is the product of a merger of several smaller companies with roots in rural Saskatchewan, Quebec, Ontario and the Atlantic provinces.
Co-operative Life Insurance Company formed in 1945
In 1945, the Saskatchewan Wheat Pool contributed $25,000 to the development of Co-operative Life Insurance Company , based in Regina. In those first years, many Wheat Pool field workers carried out the business of the Wheat Pool while selling life insurance for the new company.
The tiny insurance co-operative grew beyond all expectations. In 1949, it expanded into the Atlantic provinces, where Maritime Co-operative Services (MCS) had been providing insurance to its members since 1938 through its own insurance agency. A year later, the company moved into British Columbia and by 1947, soon after receiving its federal charter, became the fastest growing life insurer in Canada.
Premium payments came in all shapes and sizes over the history of the company. In the 1960’s, Manitoba sales manager Lloyd Hammond was paid with a 100-pound sack of wheat and an apple to renew insurance on a farmer’s truck.
Realizing that farmers needed other forms of insurance protection, Saskatchewan Wheat Pool formed a second company in Regina in 1952, Co-operative Fire and Casualty Company. Co-op Life and Co-operative Fire and Casualty were brought together under one holding company, Co-operative Insurance Services (CIS) in 1963.
The Ontario co-operative connection
Similar developments were unfolding in Ontario. In 1946, the Co-operative Union of Ontario and the Ontario Credit Union League established
Co-operators Fidelity and Guarantee Association to provide bonding and livestock transit insurance to its members. The Ontario Federation of Agriculture became the third sponsor a year later. The new company struggled for the first few years until 1950, when United Co-operatives of Ontario (UCO) contributed $75,000 to satisfy capital requirements for a new product, automobile insurance.
A joint stock company, the Co-operators Insurance Association (CIA) was formed and took over the business of Co-operators Fidelity and Guarantee Association. CIA grew quickly and, by the end of the decade, held second place out of the 250 companies writing auto insurance in Ontario.
Co-operators Life Insurance Association, was incorporated in 1959 to do business in Ontario. CIA and Co-operators Life Insurance Association were collectively known as the Co-operators Insurance Association of Guelph (CIAG). The two insurance organizations, CIS and CIAG, amalgamated to form The Co-operators in 1978.
Since then, The Co-operators has continued to purchase and work with companies that best serve the needs of our clients and the co-operative goals of our organization. We do business better together, just as we have done throughout our co-operative history.
What is quite interesting is that the “Co-operators” have formed and own several companies for offering specialized financial products and services;
Being part of Coady Institute that has deep history of coop movement in Canada and elsewhere, we have access to some of these pioneer institutions, though I am still a student of this subject. I will be happy to connect you with appropriate people here through a separate mail.
Regards,
Anuj
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] On Behalf Of Jami Solli
Sent: Tuesday, February 25, 2014 8:36 AM
To: MicrofinancePractice@yahoogroups.com
Subject: Re: [MFP] Introducing Case Briefs: Highlighting successful innovation
very very interesting and timely...can you recommend more resources on the subject for those interested in starting a cooperative insurance for a City? I'd like to explore this for residents of my small town in the US.
Thanks in advance!
Jami
On Mon, Feb 24, 2014 at 9:51 PM, Anuj Jain <ajain@stfx.ca> wrote:
Hi Hugh,
Good question. Though I am not qualified to answer it fully, I have following to offer.
I had a Diploma course participant in 2012, who did her independent research on community based health insurance subject, and I had the chance to study that subject with her in some detail. Gist of her findings was that community based insurance can indeed help a lot, especially those who are not otherwise covered or cared for in the macro system. And yet, the examples of large scale CBHIs were few and far between, and also fraught with big challenges.
As we know, at the micro-level, in VSLAS, or in Iddirs, or in SHGs, self-insurance does play a critical though limited role. But given the complexity of insurance (need for diversity of risks, scale, actuarial management, need for taking long-term view and capital management, fraud and conflict of interest), designing it under self-management system is perhaps a big challenge. From my personal experience, my home insurance is by Farmers’ Mutual here in Antigonish, a cooperative and a very well-run enterprise with long reputation. And there are other coop insurance enterprises here competing with large corporates. So indeed, it is possible. And yet, I as a member of the coop do not feel any more empowered per say; and still had to agree my coop’s unilateral increase in premiums three y ears in a row. I still like them, perhaps because of my personal bias towards coops, and good customer service I get; but don’t feel any more ownership in the coop.
Self-financed and managed insurance works, in theory, but I am not sure if it can be done with sufficient scope and scale (home, health, cattle, crops, life) without broader Institutionalization and aggregation/ diversification of risks. Perhaps a hybrid version (consolidated professionals management along with community administration/ process) is a more viable option? But as I said, I have very limited experience, so, let the experts chime in. And may be, we need to experiment with VSLAs, now that they are in sufficient numbers, to see if micro-insurance products can be introduced gradually. Please do share if you know of any pilots.
Regards,
Anuj
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] On Behalf Of Hugh Allen
Sent: Monday, February 24, 2014 7:54 PM
To: MicrofinancePractice@yahoogroups.com
Subject: RE: [MFP] Introducing Case Briefs: Highlighting successful innovation
Anuj. I am curious as to why, with all our success with community managed savings groups we repeat the approaches with microinsurance that have so signally failed in microfinance: bring in the outsiders. When we do this we quickly find that admin costs eat a large percentage of premium value and get hit quite hard by covariant risk (drought, floods etc.) I am fairly sure that with capped benefits for a limited range of risks, communities can do as good a job. Imperfect and inadequate for sure, but a great improvement on nothing at all. Such institutions (think Iddirs in Ethiopia) can be stable and sustainable and can form the basic building blocks of a more integrated system, over time. I am certain that starting with the community is a much sounder way to proceed - although I acknowledge that what savings groups have achieved may not be easily replicated in other areas.
On 24 Feb 2014 23:32, "Anuj Jain" <ajain@stfx.ca> wrote:
Well-argued Peter!
Micro-insurance, in many ways, is a conundrum of sorts. At a system level, as you have indicated, the gross risk of the affected population is often much higher than what they can realistically pay through premiums. And that is very often just a simple fact of life; be it health, asset, small holder farming, or even life insurance. While we can wish and hope that private sector should and will bear the residual risk; that seems more and more a wishful thinking.
As this case-study also suggests, there is some room to maneuver the costs of administration and to avoid fraudulent claimants; by letting the community based and managed decision making; but there is a limit in that. And Hence, at the system level, there is almost a compulsion either have cross-subsidy (in the market sphere) or subsidy (by the State).
My own personal experience with micro-insurance, post Tsunami in Tamil Nadu/ India was no different, where the project had managed to sell over 175,000 policies (home, assets, life) within a short span after the launch, but the first year itself experienced another cyclone and meant larger pay-out than the premiums collected by the insurance company; forcing them to rethink and redesign the products.
This issue is not isolated in developing world; it even dogs a nation like USA where affordable health care (Obama Care) is forcing everyone to enroll so that cross-subsidy of more vulnerable can become more financially feasible; but it is a tough political (and economic) battle to fight.
Here is a source that estimates economic losses for Haiti to highlight the scale of challenge we face:
“Haiti, which was hit by a 7.0 magnitude earthquake in January 2010, suffered an estimated 222,570 fatalities and close to $8 billion worth of economic damage, according to its government. However, Haiti is also highly vulnerable to hydro-meteorological disasters and Maplecroft's research reveals that even without the damage from the 2010 earthquake, which was equivalent to 73% of annual GDP, the Caribbean country would still have had the 12th highest economic loss in the index (loss to GDP).” Natural Disasters Economic Losses Global Index 2010
I just can’t see how any micro-insurance can realistically succeed at scale without systemic cross-subsidy or State or donor subsidy; even if re-insurance players were to brought into the picture. But must admit, my experience is rather limited. Micro-Insurance Innovations Facility at ILO has done a lot of work; it will be useful to hear their views on this subject. Here is a paper by ILO that throws some light on this subject.
Regards,
Anuj
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] On Behalf Of Peter Burgess
Sent: Monday, February 24, 2014 3:36 PM
To: MicrofinancePractice@yahoogroups.com
Subject: Re: [MFP] Introducing Case Briefs: Highlighting successful innovation
Dear Colleagues
A quick read of the Fonkoze Case Study suggests that there are a whole set of issues that are misunderstood about the purpose and practice of microcredit and microinsurance ... and the role of conventional 'for-profit' financial organizations being engaged with the social microfinance sector.
Certainly there is no reason for capital markets to be excluded from support for the microfinance sector, but the reason the capital markets are supporting this sector should be that they see the value of 'creating good' rather than merely making goods that someone with money can buy and produce a profit!
People who are typically the clients of a microcredit institution like Fonkoze are going to need help from time to time because of natural disaster. The big question is who should 'fund' the recovery that these people need.
And then there is a second question. How should the high cost of administration in an emergency recovery situation be funded?
In this case study, it seems that the big entities in the financial ecosystem backed out as soon as the need for their help was real and substantial. It seems to me that a rather modest hit to the profits of these institutions took precedence over what Fonkoze and its clients really needed.
Remember these names ... big Swiss Re and MiCRO (MIcroinsurance Catastrophe Risk Organization) limited their exposure essentially leaving Fonkoze and its clients stuck with the disaster. This is essentially what the financial sector does all the time, and it is high time they get called on their practices.
A long time ago I was the 'risk' manager and CFO of an international company operating in 26 different jurisdictions ... we managed our risk and self insured for most of the hazards that were likely to come up most of the time. However we did carry 're-insurance' for the very big event that we hoped would never happen. This was a win win for my company and for the insurance industry.
You cannot use quite the same model with very poor communities that are the typical clients of the social microfinance institutions. Big finance organizations that have a for-profit business model cannot deliver in the poor community world and at the bottom of the pyramid. Extracting profit from the BoP is almost always going to be at an unacceptable cost to the community ... yet these communities need investment in order to progress. Muhammad Yunus is on the right track with the idea of Social Business just as he was with social microcredit.
Peter Burgess
____________
Peter Burgess
TrueValueMetrics ... Meaningful Metrics for a Smart Society
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On Mon, Feb 24, 2014 at 11:47 AM, <mifacility@yahoo.com> wrote:
The ILO’s Microinsurance Innovation Facility has launched a new series.
The Case Brief series highlights successful innovation stories from the Facility’s grantees. Each brief describes a grantee's experience and lessons learned. The latest case brief features the experience of Fonkoze.
Increasingly insurance is being seen as a way to protect low-income people against the worst effects of catastrophes, such as the storms, floods and earthquakes which are regular and devastating for poor Haitians. Yet a chasm exists between the world of multinational reinsurers and the daily life of Haiti’s most vulnerable. Find out how Haiti’s largest microfinance institution was able to bridge this gap in the Case Brief: Fonkoze.
Read the full case brief at: www.microinsurancefacility.org/publications/cb5
Check out the other case briefs in the series at: http://www.microinsurancefacility.org/news/2014/february/introducing-case-briefs
Please feel free to share the case briefs with others.
Best regards,
ILO’s Microinsurance Innovation Facility
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