Anuj,
Your hybrid model seems to work well but SEWA is one of a very sophisticated organization that has been involved with insurance for many years. At the level where Hugh and I work - in the remote corners of Mali and elsewhere the "virtual insurance" as I have come to call it evolves as a natural outcome of the group process as the bonds of solidarity and mutual assistance strengthen. Between Oxfam/Freedom from Hunger, CRS, Plan and CARE there are nearly 700,000 villagers most of them women benefiting from savings group membership in Mali. That's at the first level. The findings of a massive RCT carried out in 500 villages with about half the villages randomly assigned to receive Saving for Change training found that there was a measurable if modest decrease in the perception of chronic hunger and a 13% increase in the value of livestock the family owned as the women in these groups also increased their total savings by a third. In short the outcome was increased resilience - the capacity to deal with shocks including the easy availability of the bits of money needed to deal with emergencies such as the purchase of medicine. Thus in two ways even the savings groups represent a kind of informal insurance policy both thorough increased solidarity and increased resiliency.
Is this the last word in dealing with the unpredictability of life, certainly not, but it does represent an informal, mass scale, non-institutional and virtually no cost way of insuring those that lack access to any other option and who are unlikely to have access to standard insurance products in the foreseeable future. Those promoting insurance are blind to what virtual insurance can accomplish, as financial institutions are blind to the fact that these groups providing each access to a better way to save and to borrow even though it is non-institutional Perhaps some day microfinance will figure out how to reach this population but for now this is a "good enough" option for now.
Thanks for initiating this discussion,
Jeff
Jeffrey Ashe
jaashe@aol.com
-----Original Message-----
From: Anuj Jain <ajain@stfx.ca>
To: MicrofinancePractice <MicrofinancePractice@yahoogroups.com>
Sent: Mon, Feb 24, 2014 10:03 pm
Subject: RE: [MFP] Introducing Case Briefs: Highlighting successful innovation
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 fraug ht 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 years 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 int roduced gradually. Please do share if you know of any pilots.
Regards,
Anuj
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.
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 gove rnment. 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 b e useful to hear their views on this subject. Here is a
paper by ILO that throws some light on this subject.
Regards,
Anuj
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 mod est 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
TrueValueMetrics ... Me aningful Metrics for a Smart Society
Multi Dimension Impact Accounting
twitter: @truevaluemetric @peterbnyc
mobile: 212 744 6469 landline 570 431 4385
email:
peterbnyc@gmail.com skype: peterburgessnyc
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.
Please feel free to share the case briefs with others.
Best regards,
ILO's Microinsurance Innovation Facility
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