Thanks Craig; through as usual! (And thanks Jeff.)
To keep the records straight, the Zambia institution had both compulsory savings (20% of loan amount that we tried to bring down to 10%) as well as loan insurance product that was introduced in year 2000, in collaboration with a private sector insurance company. The premium, I must admit, was arrived at rather anecdotally, and the company was happy with low premium rate, with the caveat to review and revise it in a year's time, depending on the pilot experience. The policy allowed borrowers to skip installment payment if s/he fall sick or had any other medical condition for X weeks; and in the case of death, insurance company was to pay-out equitant to the loan amount, part of which was kept by the MFI (to off-set unpaid loan) and part was given to next to kin. The agreement also had a provision that if the gross premium collected was more than pay-outs in a given year, the profits will be shared with the MFI (but not the risk). It was a neat arrangement, I think. But, this was at the height of HIV epidemic (15-20% adult population), and to top it all, overall portfolio quality was suffering due to many other reasons. We were quite green, trying to run a financially sustainable MFI in a context where loan capital came from a donor, local currency fluctuated wildly due to political and economic uncertainties and health system had all but collapsed for the majority. Micro-insurance seems like a wishful idea, hind-side.
One example I know of, linking VSLAs with insurance company, is from CARE/ Uganda, which started as a pilot a couple of years back. CARE UK brought out a publication sharing their pilot experience, but fully recognizing that the pilot was yet to fully mature. We perhaps can request an update.
Craig, it will really be helpful if you have examples to share where public policy, institutional architecture (hybrid or otherwise), and product designs have worked (or attempting to work) in tandem and at scale. Two examples that come to mind, anecdotally, are from Thailand and Rwanda (health insurance), led by the State. If you can point to any paper on role of public policy and subsidy, that will also be very helpful.
Thanks for sharing the regulatory challenges around mutual insurance, will be very useful for my class!
Regards,
Anuj
From: MicrofinancePractice@yahoogroups.com [mailto:MicrofinancePractice@yahoogroups.com] On Behalf Of Craig Churchill
Sent: Tuesday, February 25, 2014 5:42 AM
To: dteter@oxfamamerica.org; MicrofinancePractice@yahoogroups.com
Cc: armanoza@hotmail.com
Subject: Re: [MFP] Introducing Case Briefs: Highlighting successful innovation
Thanks Peter for initiating the discussion, and for the thoughtful inputs from Anuj, Jeff and Hugh. Let me respond to a few of the issues raised:
- terminology: Jeff refers to the importance of "virtual insurance"...I strongly endorse the idea that we need to think holistically about risk management including risk prevention and mitigation, and how savings, credit and insurance can support and reinforce each other to provide more effective risk management solutions, but I would caution against referring to emergency loans, rainy day funds or reciprocal lending as "informal insurance" because I think it does a disservice to financial literacy. It is not easy to explain what insurance is and how it works, especially when people are using that terminology to refer to other things. When I visited a microfinance programme that Anuj ran in Zambia many years ago (coincidentally), they had a "loan insurance fund". But when I probed a bit more, I realized it was just forced savings used as collateral, making it more difficult for staff and clients to actually understand real insurance.
- mutual and cooperative solutions: I agree that this approach holds significant appeal, but the results in practice are much less attractive in general, with some interesting exceptions, such as insurance schemes or companies set up by credit union federations, or the member benefit associations (MBA) that have legal recognition in the Philippines. In some countries, one of the challenges is the regulatory environment. To address this, the International Association of Insurance Supervisors (IAIS) and the Microinsurance Network published an issues paper a couple of years ago: http://www.iaisweb.org/Supervisory-Material/Issues-papers-48.
Anuj has correctly identified the key operational challenges, which I think can be boiled down to two key issues: expertise and scale. Indeed, insurance is based on the law of large numbers, so without scale it is unlikely to last long. While in some places informal insurance (which really is insurance) proliferates as Hugh mentions, such solutions tend not to provide as good value for money as formal insurance, and they are more likely to fail. Which leads to the other intriguing idea raised in this discussion...
- hybrid models: This is definitely an area where I think more work should be done. Hugh cautions about bringing in outsiders, but insurance if fundamentally different from savings and credit, which means that the concerns are different. So yes be concerned about high admin costs, but in fact the covariant risks are one of the main reasons why you need to bring in outsiders - a small mutual insurance group cannot cope with a risk that affects many members at once, unless that group has insurance (or reinsurance) for those risks with outsiders.
Besides the example of Sewa raised below, another hybrid approach is with Old Mutual in South Africa, which has a funeral insurance product distributed through burial societies. This enables the members of the burial societies to still benefit from the social and mutual support of being in a group, but they have a greater guarantee that the insurance benefits will actually be paid. I would love to learn about more collaborations along these lines, including links between insurance companies and VSLAs.
- subsidy: Peter raised the question about subsidy, and indeed this is where the nuances of the microinsurance discourse are quite interesting, and quickly evolving. There are many different types of coverage, some that can be viable on their own and others that struggle to succeed. Life, personal accident, some basic hospital cash products have demonstrated to be viable, profitable even (in some cases perhaps too profitable), whereas there are sustainability challenges with health, agriculture and disaster insurance especially when they are offered on a voluntary basis. But some policymakers are recognizing that insurance can help them to achieve public policy objectives which warrant subsidies. Thanks Anuj for promoting the paper that we recently published on this issue, together with IFPRI: http://www.microinsurancefacility.org/sites/default/files/MP29.pdf
cheers,
Craig
******************************************
Craig Churchill
International Labour Organization
Social Finance Programme
4 route des Morillons, CH-1211 Geneva 22
Switzerland
Email churchill@ilo.org
Tel 41 22 799-6242
Fax 41 22 799-6896
www.ilo.org/socialfinance
For details about the ILO's Microinsurance Innovation Facility, see: www.ilo.org/microinsurance *make sure to visit our new and improved website*
For details about the Microinsurance Network, see www.microinsurancenetwork.org
>>> M <jaashe@aol.com> 2/25/2014 6:10 am >>>
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
From: MicrofinanceP ractice@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 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
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 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
____________
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
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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