Microinsurance and MFIs

Microinsurance and MFIs Craig Churchill Microinsurance Innovation Facility International Labour Organization

Outline of the presentation Should an MFI offer microinsurance? If so, through what institutional structure? If they partner with an insurance company, how to manage that relationship effectively? What products should the MFI offer? Concluding thoughts

Commercial Lower credit risk Enhance client retention Bolster product profitability Diversify income streams Reach out to new markets Social Help clients to reduce their vulnerability Improve client welfare 1. Should MFIs offer insurance? For those that do, their primary motivations are:

1. Should MFIs offer insurance? Possible reasons for not offering insurance: • Inefficient or expensive way of addressing the risk of client death • Requires a different skill sets from savings and credit • Do not want to be distracted from core competencies • Wise to separate credit and insurance risks

2. Institutional options Microinsurance supply chain Broker Delivery Channel Policyholders (low-income households) Risk Carrier Reinsurer Administration platform

2. Institutional options • Self-insurance • Partner-agent model • Microinsurance broker • Create an insurance company

2. Institutional options • Self-insurance • only for basic products • if the MFI has > 10K clients • and technical assistance • and catastrophe cover for large losses • Partner-agent model • Microinsurance broker • Create an insurance company

3. Making the Partner-agent model work • Tell them what you want • Choose a trustworthy insurer • Involve the insurer in understanding customer needs • Manage claims* • Create a review committee

3. Making the Partner-agent model work • Eliminate exclusions • Maintain and analyse data • Determine the costs • Own the clients • Share the profits

4. Products Credit life • Perhaps the best opportunity to expose large number of low-income people to insurance • It is a lost opportunity if they did not know that they were covered, or if they had a bad experience with the product • It needs to cover more than just the loan to increase the chances that policyholders will have a positive experience with it

4. Products Integrated vs. stand-alone products • More efficient to “piggyback” insurance transaction onto another transaction • Link with credit limits value because people do not always want to be in debt • Links with savings have high potential • Does the MFI want to develop the capacity to deliver stand-alone insurance products?

4. Products Health • Often the product for which there is the greatest demand • Illnesses can cause a significant problem for the MFI’s loan portfolio • If MFIs do offer health, perhaps focus on more basic products like hospital cash • Can MFIs offer health savings accounts for small, frequent health expenses?

4. Products • Insurance for the MFI? • MFIs should consider their broader insurance needs when negotiating with insurers • If frontline employees have the same coverage, it will be easier for them sell it to clients • Other coverage to consider: vehicles, property, fidelity, money storage and handling

5. Concluding thoughts MFIs need to: • Reflect on their objectives • Develop in-house expertise • Actively manage their microinsurance scheme, even in a P-A model, because their reputation is at risk • Consider how ensure that low-income households appreciate insurance and are willing to pay for additional benefits • Persuade front line staff that insurance provides value for clients and the MFI

Thank you! Craig Churchill churchill@ilo.org Tel +41 22 799 6242 www.ilo.org/microinsurance www.microinsurancenetwork.org A member of the

Microinsurance and MFIs