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Allianz Microinsurance Report 2010


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Read interviews with leading experts, and learn more about Allianz microinsurance projects in India, Indonesia and Africa.

Read interviews with leading experts, and learn more about Allianz microinsurance projects in India, Indonesia and Africa.

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  • 1. Subjectlearning to insure the poormicroinsurance reportallianz group Microinsurance 1
  • 2. On the learning curve – Six years of microinsurance at Allianz 2004 2005 2006 2007 2008 2009 2010 MARCH 2004 JUNE 2005 JULY 2006 JUNE 2007 JANUARY 2008 OCTOBER 2009 Small credit life Market assessments Partnership set up with Credit life insurance General insurance Funeral insurance insurance portfolio carried out in Laos, CARE International to launched in Egypt with launched in Tamil launched in launched in India Indonesia and India in offer microinsurance PlaNet Guarantee Nadu, South India, with Côte d’Ivoire with with microfinance partnership with to coastal village CARE International cooperative institution Activists for UNDP and GTZ households in Tamil UNACOOPEC NOVEMBER 2007 Social Alternatives Nadu, South India Death and disability MARCH 2008 insurance launched Credit life insurance FEBRUARY 2010 OCTOBER 2004 SEPTEMBER 2006 in Colombia with MFI launched in Cameroon, Savings-linked life First discussions and Credit life insurance Banco de la Mujer Senegal and insurance launched plans within Allianz “Family Umbrella” Madagascar with with Punjab Dairy headquarters to under- launched in Indonesia PlaNet Guarantee Federation in India DECEMBER 2007 take microinsurance Mutual health insurance launched in Tamil Nadu, APRIL 2008 South India, with CARE Savings-linked life International insurance launched with SKS Microfinance in India 3,500,000Number of Clients AFRICA 3,000,000 ALLIANZ MICROINSURANCE POLICIES SOLD 2004–2009 BY COUNTRY / REGION COLOMBIA 2,500,000 INDONESIA 2,000,000 INDIA 1,500,000 1,000,000 500,000 Source: Allianz SE 2004 2005 2006 2007 2008 2009 20102 Microinsurance
  • 3. PrefaceHalf the world – Four billion people live on incomes of less than eight dollars per day. 2.6 billion to share our experiences so far, present the views of leading experts, and – inthe market for have to get by on less than two dollars dialogue with you – set the right course per day. Besides suffering daily depriva- for the next steps to be taken.microinsurance. tions, the world’s poor are often more exposed to risks ranging from disease We see a considerable number of chal- to crop failures to the consequences of lenges on the way: climate change. • How can risks be assessed and shared Microinsurance could help many of the- in the absence of sufficient data? se people escape poverty. It contributes • How can products be adapted to meet to wealth creation by insuring against the diverse needs of customers while risks and thus enabling investments still being standardized for cost effici- and accumulation of assets. But unlike ency? microloans, which are already well es- • How can sales and administration be tablished, insurance policies have been organized even more efficiently? considered too complex and cost-inten- • How can people in often remote regi- sive to be financed with small amounts ons learn about insurance and how to of money and marketed in rural regions. use it for their own benefit? • In some countries, laws have been Together with our partners – UNDP, GTZ, passed that create the first incentives CARE International, PlaNet Guarantee, for microinsurance policies. But what SKS Microfinance, and numerous micro- can be done to establish market con- finance initiatives and cooperatives – we ditions that foster competition in a have been able to sell our life insurance, sustainable way? property insurance, and health insu- rance policies to 3.8 million customers By finding answers and solutions, we in India, Indonesia, Africa, and Latin hope to help as many people as possible America. It is the beginning of a lear- attain prosperity and to serve them as ning process. With this report, we want customers over the long term. Michael Diekmann Chairman of the Board of Management Allianz SE Photo: Allianz SE
  • 4. INSIGHT Table of 1 IDEA Pages 4 – 9 · Microinsurance specifically targets low-income people. Contents · It helps them to manage risks better and be more productive. What is · The potential market is large: Four billion people live on less microinsurance? than $3,000 per year. 2 DESIGN Pages 10 – 15 · Data on needs, demand and risks is hard to obtain, making product design difficult. How can we · Conducting studies and working with local partners helps. create products for · Short-term products are oppor- low-income people? tunities to continuously adapt. 3 OPERATIONS Pages 16 – 21 · Insurance requires a lot of customer interaction, which can drive up cost. · Solutions lie in working with How can we deliver local partners, leveraging technology and aligning on what we promise? incentives. 4 SALES Pages 22 – 27 · Marketing is very much about customer education. · Messages and channels have to reflect local realities. How can we convince · Training sales staff is required to The world of microinsurance World map of microinsurance markets, our customers? provide good service. insurance penetration and Allianz engagement Pages 34 / 35 5 At the frontiers of GROWTH Pages 28 – 33 · Microinsurance is a low-margin, microinsurance high-volume business. An outlook · Standardization and efficiency Page 36 are key to keeping costs low. Further information Page 37 How can we be · Scale can be achieved through delivery channels with extensive Imprint profitable and gain scale? networks. Page 372
  • 5. EXPERIENCE STATE OF KNOWLEDGE PERSPECTIVECASE STUDY FACTS & FIGURES INTERVIEW WITHFamily Umbrella – Starting up Microcredit – Paving the way Jonathan Morduchwith credit life insurance in for microinsurance Page 6 “MicroinsuranceIndonesia Half the world – The market can fill huge gapsPages 5–7 for microinsurance Page 8 in risk manage-PARTNER SPOTLIGHT Safety & opportunity – ment” Page 9GTZ Benefits of insurance Page 8Page 7CASE STUDY FACTS & FIGURES INTERVIEW WITHCyclone Nisha – Blowing general Building a future – Construc- Michael J. McCordinsurance down in South India tion advice to strengthen “If we want peo-Pages 11–13 property insurance Page 12 ple to buy it, theyPARTNER SPOTLIGHT More health, please! – Product have to see a need demand & supply Page 14 for it”CARE International Page 15Page 13 Assessing needs, approximating risks Page 14CASE STUDY FACTS & FIGURES INTERVIEW WITHSelf Help – Strengthening mutual Infrastructure in low-income Craig Churchillhealth insurance in South India markets Page 18 “Technology toPages 17–19 Building partner capacity Page20 process transac-PARTNER SPOTLIGHT Delivering microinsurance tions in the field Page 20 is the key”UNDP Page 21Page 19 Technology prevents fraud Page 21CASE STUDY FACTS & FIGURES INTERVIEW WITHBrand-new value – Islamic insurance – Respon- Rupalee RuchismitaBuilding markets in Africa ding to religious needs Page 24 “It’s a wholePages 23–25 The ACB of customer journey for aPARTNER SPOTLIGHT education Page 26 household from Explaining insurance awareness toPlaNet Guarantee Bollywood-style Page 26 action”Page 25 Page 27CASE STUDY FACTS & FIGURES INTERVIEW WITHCash Cows – Expanding the Indian customer profile Jim Rothmarket with dairy federations Page 30 “It is an extremelyPages 29–31 3 keys to profitability Page 32 long-term trend,PARTNER SPOTLIGHT Market penetration of other and it will grow services Page 32 and grow”SKS Microfinance Page 33Page 31 Where growth happens Page 33 3
  • 6. 1 Photo: Frank Stern IDEA What is Some typical Allianz microinsurance? microinsurance customers: dressmakers in Aceh, Indonesia. • Microinsurance offers protection against • They are also more vulnerable, with few the risks in life specifically for low-income assets and therefore less ability to cope with people in developing countries, with loss. Shocks can easily lead to destitution. customized products and processes. • Microinsurance responds to difficult market • Low-income people are often more expo- conditions. Premiums are small enough to sed to such risks as death, illness, and loss of be affordable, documentation is reduced to property or harvests because they make their a minimum, and delivery channels reach out livelihoods in agriculture, for example, or live to the slums and villages. in areas prone to natural disaster.4 Idea
  • 7. Family Umbrella – Starting up with credit life insurance in Indonesia By introducing a simple product, Allianz could explore the unknown market of low-income households. They are now adjusting the product to protect families even better.Could there Zakiyah proudly presents the inven- tory of her small textile shop. Shirts, Her income has tripled: “I now earn € 4.60 on an average day. Together withactually be dresses and pants of all colors are my father’s earnings as a parking lot stacked within a few square meters guard, we get by well.”a market at in the heart of Jakarta, the capital of Indonesia. With the income from her First steps in Indiathe base of shop, Zakiyah supports her father and Allianz had made first steps in offering six siblings, who share a small home. microinsurance in India. Together withthe economic She also pays her youngest brother’s the MFI Activists for Social Alternativespyramid? school fees. Before, Zakiyah’s mother also contributed to the family budget (ASA), Allianz had started to offer credit life insurance: ASA’s microloans were with her doughnut stall. When she bundled with coverage for the outstan- died of diabetes a month ago, her fami- ding debt in case of the borrower’s death. ly was left mourning, but not indebted. Their experiences were quite encoura- Zakiyah’s mother had taken out an au- ging. Could there actually be a market at tomatically insured microcredit of € 77 the base of the economic pyramid? from a local microfinance institution (MFI) that cooperates with Allianz. Al- Mapping new territory lianz covered the credit and paid € 154 Allianz was entering new territory: to the family. Zakiyah used some of the low-income markets. Information funds for the funeral ceremonies. She about them was scarce since standard invested the greater part of the money market research did not cover the- to buy better stock for her business. se households. To map out this white 3 Photo: Martin Hintz Zakiyah (1st from right) talked with staff of Allianz and the partner MFI about her experience with microinsurance. Idea 5
  • 8. Photo: Martin Hintz Photo: Martin Hintz Focus groups like this one in East Jakarta were asked what risks people faced, what insurance products Evi Kristianingsih took out an insured credit for they would buy and how much they were willing to pay for insurance. her small shop in Jakarta. space, the company teamed up with ex- broaden its engagement in India. The that already offered credit life in Indone- perts: the German development agency market in Laos, however, was not ready sia. To provide additional value, Allianz GTZ and the United Nations Develop- for microinsurance. decided to pay out twice the amount of ment Programme (UNDP). Together, the loan to the family, on top of the credit they conducted demand studies in Opening the family umbrella cover for the MFI. India, Indonesia and Laos. What risks In Indonesia, households were most did people face and what strategies did concerned about the education of their Payung Keluarga, meaning “Family Um- they use to manage them? What insu- children, serious illness, and the loss of brella” in Bahasa Indonesia, the local rance products would low-income peo- harvests. But insuring these risks is com- language, was launched in September ple want to buy? How much would they plicated and requires a deep understan- 2006. The insurance automatically ap- be willing to spend? ding of the market. Households were also plies to all new credits issued with the concerned about the death of relatives, MFIs – regardless of the background of Promising sales opportunities were especially since elaborate and expensive the borrower – which greatly simplifies identified in Indonesia and India. In funeral traditions can easily throw a fa- the sales process. The premium of 1.2 Indonesia, market penetration for in- mily into debt. So Allianz decided to start percent of the loan amount per year is surance was low and few companies with credit life insurance, where claims withheld when the loan is disbursed. were reaching out to low-income fami- are easy to assess and settle and the risk lies, even though demand was high: a of fraud is low. Moreover, the company Gauging impact clear gap. Allianz decided to develop could build on an established model in Sales have grown rapidly: In 2009, Al- customized products in Indonesia and India, and learn from other companies lianz handed out 209,000 policies, six Microcredit – Paving the way for microinsurance Microcredits are very small loans that help Microcredit products are designed specifically are small compared to those of traditional mo- those living in poverty become self-employed for low-income people. Since borrowers can ney lenders, who can charge 500 percent and or expand their businesses. A global success rarely offer collateral, they often stand in for more. story, microcredit has proven that low-income one another in groups. Loans are small, typi- people are willing and able to pay for financial cally around € 100, and short-term, often run- Microinsurance gets its inspiration from services. Recognizing these achievements, the ning for just a few months. While interest rates microcredit. What is more, it learns from Nobel Peace Prize was awarded to Grameen can be high compared to Western standards, microcredit’s principles and builds on its net- Bank founder Muhammad Yunus. ranging from 20 to 70 percent annually, they works.6 Idea
  • 9. What is microinsurance? Photo: Martin Hintz Photo: © Martin HintzGroup treasurer Ibu Nur pays the group micro- Staff of an MFI after having received training from Allianz on how to explain, sell and servicecredit installment in Jakarta. microinsurance from Allianz project manager Martin Hintz (in the back).“The most important about the prospects of microinsurance: “The most important thing for us is to women, who are rarely the main bread- winners at home. So the greater econo- thing for us is to acquire new customers and grow with them. Then our portfolio will begin to mic risk is not actually covered.” acquire new expand.” Expanding the umbrella In 2008, Allianz Indonesia began to offer customers and But Martin Hintz, the project manager insurance that covers the spouse of the of Palyung Kaluarga at Allianz, was insured as well. This improved product grow with them.” not satisfied with the social impact of thus provides coverage when the main the insurance: “Impact is still literally breadwinner dies. Martin Hintz high-Jens Reisch, micro,” he says, having interviewed lights another benefit: “Because joint co-CEO, Allianz Life Indonesia 26 beneficiary families. “Payouts were verage is optional, the MFI has to make mainly spent on funerals, which would an active choice for it. This ensures that otherwise be supported by friends and MFI staff are properly informed abouttimes more than in 2007. Premium in- family. Some customers spent more product characteristics.” The companycome has risen as well, yielding more on those funerals than they otherwise is now busy marketing the improvedthan € 165,000 in 2009. Though this would have. Others gave to charity be- product – for its own benefit and that ofsum is still relatively small, it already cause they felt the money belonged to people like Zakiyah.includes a profit. Jens Reisch, CEO of the deceased. Because it is tied to mi-Allianz Life Indonesia, is optimistic crocredit, the insurance covers mainly x Watch the video about Ida Rosina, one of Allianz customers in Indonesia PARTNER SPOTLIGHT GTZ x is an international development agency and development agencies. Its goal is to strengthen of the German government. GTZ promotes micro- the capacity and understanding of insurance supervi- insurance as a pro-poor financial service and as an sors, regulators and policymakers. important strategy to increase social protection. This includes health microinsurance schemes, improved Together with Allianz and UNDP, GTZ supported the risk management and index-based weather insurance demand studies in India, Indonesia and Laos that led for agriculture. GTZ also promotes insurance literacy to Allianz microinsurance activities in Indonesia. The and consumer protection. agency also facilitated contacts with MFIs and con- GTZ hosts the Access to Insurance Initiative x, tributed expertise during the product development a global partnership between insurance supervisors process. Idea 7
  • 10. Half the world – The market Safety & opportunity – for microinsurance Benefits of insurance Insurance helps low-income customers in F our billion people live on the equiva- lent of eight dollars a day or less in local purchasing power. Called the “base Demand for reliable financial services Most low-income households don’t live from hand to mouth, but manage their two ways. Preparing for loss of the economic pyramid,” they are not funds over time. Insights on the “port- First, it can help people prepare better for actually a homogeneous segment, but folios of the poor,” studied by Jonathan risks and encourage them to invest more. rather a diverse group ranging from Morduch and his colleagues, can inform In the absence of insurance, a natural pastoralists and small-scale farmers to the design of targeted products: response is to reduce risk. People don’t urban craftsmen and shop owners, with • The incomes of the poor are not just invest much in their homes or belongings a wide variety of lifestyles and living low, but also irregular and unpredicta- when they can be lost at any time. They standards, from the destitute to an as- ble. Farmers face the ups and downs of also diversify their income sources, from piring middle class. Microinsurance tar- seasons, income from microenterprises agriculture to migrant labor and home gets those in the middle. The extremely is volatile, employment comes and goes. production. But that lack of specialization poor, living on less than a dollar a day, • The lives of low-income people are keeps productivity low. have too few assets and need humanita- more uncertain than those of the better rian aid; the wealthier can often access off. Low-income households face higher Coping with loss traditional insurance products. risk of health problems, accidents and Second, insurance helps people cope with death, and they often live or work on loss when it occurs. In case of loss, low- $5 trillion in purchasing power land that is prone to natural disasters. income households first rely on their own The four billion people at the base of the • People use a variety of mostly infor- assets. They draw down their savings and pyramid spend five trillion dollars per mal tools to spread their incomes over sell their property, leading them deeper into year in local purchasing power, accor- time, deal with risk and put up large destitution. Some have to take their child- ding to research by the World Resources sums when needed. They borrow from ren out of school to earn additional income. Institute and the International Finance friends, save in groups with neighbors Corporation. Households spend most of or get advances from the grocery shop. Social networks help. People use a range their budgets on food and other basic These tools are flexible, but also often of mechanisms, from family obligations necessities like housing and energy. Still, unreliable. to mutual insurance schemes, to support close to one trillion dollars are availa- each other. But these mechanisms break ble for other things, including financi- Morduch summarizes: “Poor households down when hardship affects all members al services. Yet Microinsurance Centre show that they are impatient for better- of a network at the same time, like when data show that only 78 million people quality service, inventive in bending a drought destroys the harvest. Insurance were covered by microinsurance in the such services for their own purposes, with larger risk pools can provide security world’s 100 poorest countries as of 2006 – willing to pay for them, and longing for in these cases. a tiny part of the potential market. more reliable financial partners.” Number of people living on the equivalent of less than $3,000 in local purchasing power per year Spending per sector by people living on less than by region and income segment (in millions) $3,000 per year (in US$) F O O D 2,895 bn. Income 200 400 600 800 1,000 1,200 1,400 1,600 E N E R G Y 433 bn. segment* $2,500–3,000 EAST ASIA & PACIFIC H O U S I N G 332 bn. EUROPE & CENTRAL ASIA $2,000–2,500 LATIN AMERICA & CARIBBEAN T R A N S P O R T 179 bn. MIDDLE EAST & NORTH AFRICA H E A L T H 158 bn. $1,500–2,000 SOUTH ASIA TOTAL $ 5 trillion I C T * 51 bn. $1,000–1,500 SUB-SAHARAN AFRICA W A T E R 20 bn. $500–1,000 O T H E R 932 bn. $0–500 * Income is measured in local purchasing power, with 2002 as the year of reference. Note: The World Bank counts 4.9 billion people living on less than $3,000 per year. There are a number of possible reasons for the difference with the 4 billion counted by IFC and WRI. For example, “The Next 4 Billion” considers only 110 countries. * ICT = Information and Communication Technology Source: PovcalNet / World Bank Source: IFC/WRI (2007) Next 4 Billion8 Idea
  • 11. What is microinsurance?“Microinsurance can fill huge gaps in risk management” Jonathan Morduch talked with us about how microinsurance can help low-income people improve their lives.Photo: © Jonathan Morduch The professor of public policy and economics at New York University focuses his research on international development, poverty and financial access. He is a co-author of Portfolios of the Poor, a one-year, on-the- ground inquiry into the financial lives of 300 low-income households in Bangladesh, India and South Africa. He also leads the Financial Access Initiative x, a consortium of development economists focused on expanding access to quality financial services for low-income people. What role do risks play in low-income Plus, microcredit is usually provided Could access to insurance also harm the people’s lives? for business needs, not for paying for poor? How can they be protected? Risks were very much a problem for the doctors, medicines or property loss. In In general, not having insurance is a households interviewed for Portfolios Portfolios of the Poor, Stuart Rutherford greater risk than having insurance. But of the Poor. In Bangladesh and India, finds that about half of Grameen Bank there’s much to learn from efforts to my co-authors Stuart Rutherford and customers interviewed used their cre- improve consumer protection in micro- Orlanda Ruthven found that roughly dits for consumption. Households used credit. New measures give customers half of the families had major health credit to deal with risks or irregular ways to resolve disputes with providers crises during the year. And in South expenses because they lacked better and improve the transparency of con- Africa, Daryl Collins found that about 80 instruments like microinsurance. tracts. In insurance, credit life products percent of the families had to contribu- can be particularly hard to assess since te substantially to funeral costs, largely And while small enterprises are impor- the price is usually rolled into the credit due to HIV/AIDS. So families were thin- tant for poor communities, they may contract itself. Many households lack king a lot about risks. not grow as quickly or contribute as a clear understanding of how much much to the local economy as hoped. they are paying relative to what they are How could microinsurance help them It’s possible that better risk manage- actually getting out. manage these risks? ment tools could help to foster that Most low-income people rely on infor- kind of expansion. How could microinsurance contribute to mal insurance. They borrow and draw achieving the Millennium Development on their friends and neighbors to deal What can microinsurance learn from Goals, the United Nations’ commitment with crises. This works reasonably well microcredit? to halve poverty by 2015? for small problems affecting only a few First, households are willing to pay Hunger has many causes, but sup- members of a community at a time. For reasonably high prices if products and porting farmers through basic crop anything else, it can be fairly unrelia- services deliver quality. But paying pre- insurance could help. And health ble. And microinsurance promises to miums charged as a single lump sum problems are often financial problems. bring the reliability of formal insurance can be difficult. Breaking payments The poor might be able to pay for a local to the poor. down into a series of small installments doctor, but lack the resources to buy often allows households to manage medicines or go to a hospital. Simple Microcredit has received a lot of their cash flows. Second, households health insurance could cover these big- attention. What additional benefits can understand fairly complicated con- ger health expenses and thus address does insurance offer? tracts – when described in a way that one of the biggest problems millions Credit is very important in risk manage- makes sense in their local context. around the world face. ment, and savings are important as well. But poor families often face risks that neither credit nor savings can address. Idea 9
  • 12. 2 Women participating Photo: Rustam Sengupta in a self-help group DESIGN meeting to discuss microinsurance in Nagapattinam, a flood-prone area of South India. How can we create products for low-income people? • To create value, microinsurance products • Demand studies can identify gaps in risk must be significantly better than currently management as well as risk profiles, price available risk management options. sensitivities and service preferences to inform product design. • Health insurance is the top priority of low-income households, but life insurance • Actuarial data on risk patterns is sketchy, is most widespread. and therefore pricing is often adjusted with experience.10 Design
  • 13. Cyclone Nisha –Blowing general insurancedown in South IndiaMicroinsurance can help low-income people face up to increasingclimate risks and extreme weather events. But developing viableproducts is challenging due to a lack of data and experience. “Over 98 percentC limate change is rapidly altering global weather patterns. And the Matching up complementary capabilities CARE International was one of the many of thoseworld’s poor, who are least responsible non-governmental organizations (NGOs) affected byfor the changes, stand to lose the most – that helped people recover after the tsu-because so many rely on agriculture for nami. Yet CARE not only assisted people climate disasterstheir livelihoods or live in areas prone to with their immediate needs for shelterflooding. From 2000 to 2004, 262 million and food, but also took a long-term view live in thepeople were affected by climate disas- to enabling people to find ways out of po-ters annually – over 98 percent of them verty. Protecting livelihoods was clearly a developingin the developing world, according tothe UNDP. key concern after the crisis, so CARE ex- plored how insurance could help. world.” HumanFour years after the devastating tsu- At the same time, Allianz was investiga- Developmentnami of 2004, the coastal communi- ting ways to expand its microinsurance Report 2008,ties of Tamil Nadu on the southern tip offer in rural India. Executives in Munich UNDPof India had rebuilt their homes and had been shocked by the impact of thefishing enterprises. In November 2008, tsunami: while the giant wave had takenanother natural catastrophe – Cyclone the lives of 230,000 people and destroyedNisha – destroyed these barely regai- the property of millions, it had hardlyned livelihoods. This time, however, touched the company’s balance sheet.16,000 families could fix the damage Those who had suffered were simply notquickly thanks to insurance they held insured. This needed to change. “As wewith Allianz. got together with CARE, it became clear 3 Photo: Bajaj Allianz Two young men stand in the floods that devastated the south of India after Cyclone Nisha in November 2008. Design 11
  • 14. Photo: Bajaj Allianz Photo: CARE International Cyclone Nisha destroyed thousands of huts like this one in Kandhamangalam. Women queue to sign up for general insurance. that both our organizations could com- lived below the poverty line, and only a and CARE to develop a new product: a plement each other in our endeavors,” few owned a boat or piece of land. general insurance policy that covered remembers Michael Anthony of Allianz a range of risks. Buying one policy for headquarters, who initiated the partner- Despite their meager assets and inco- multiple risks was attractive to low- ship. “CARE had been working with low- mes, many families were prepared to income households, who don’t want to income households in India for more pay for insurance. Almost half named tie money up in several policies, some than 50 years and was collaborating health insurance as their first priori- of which may never lead to a payout. For closely with community-based NGOs, ty, followed by maternity benefits, old € 0.95 per year, policyholders would re- reaching deeply into local communities. age pensions and disability assistance. ceive a defined payout in case of total or Allianz had the financial management Life insurance was already available in partial disability, hospitalization, loss experience and processes.” the region, and hence was not in high or damage to the household or other demand. Asked about payment op- assets, and death. The policy also inclu- Understanding demand tions, most families said they preferred ded an education grant for one child. The product should respond to the needs monthly contributions. They felt most For another € 0.65, a spouse could also of the communities affected by the tsu- comfortable paying via self-help groups, be insured. nami. A team of researchers went out to especially for health insurance, followed talk to more than 1,000 households in 22 by post offices and banks. Neither partner had information on the villages and four districts. Everywhere, probability of loss. Little data existed on people were surprisingly poor despite Defining an innovative product any of the insured risks. The only option the outpouring of humanitarian aid af- This detailed picture enabled Bajaj Al- was to get a product into the market and ter the tsunami: 42 percent of families lianz, the Indian Allianz joint venture, learn to price it from experience. The © CARE International Building a future – Construction advice to strengthen property insurance In the villages of Tamil Nadu, most people const- ruct their own homes. Jamuna Bhaskhar of Bajaj Allianz explains: “Our engineers realized that by making simple changes to the structures of the cottages, the damage could be reduced by around 40 percent.” CARE now provides advice on how to make houses more durable. Figure 5: Pictures from an instruction leaflet that explains how to construct a solid foundation.12 Design
  • 15. How can we create products for low-income people? Photo: Bajaj Allianz Photo: CARE / Sandra BullingBajaj Allianz staff settle claims with policyholders Fishermen fix their boat, which had been broken by the cyclone.after Cyclone agreed to review the product’sperformance annually, so that Bajaj Alli- While it protected policyholders, Bajaj Allianz young venture emerged from Cy- “Many pooranz could adjust its pricing in response. clone Nisha in dire straits. The company had paid around € 800,000 in claims sett- people didn’tFacing the cyclone lements – nearly ten times the amount understand why theySales started in March 2008, with a fo- it had collected in premiums. Dr. Ashokcus on the coastal area most prone to Patil, Head of Rural Business at Bajaj Al- should pay moneynatural disasters. Within the first nine lianz, recalls: “We had to seriously assessmonths, nearly 63,500 policies were the commercial viability of the product.” for insurance.sold. When Cyclone Nisha hit in Novem-ber 2008, thousands of families lost their To improve the business case, Bajaj Al- lianz decided to develop the product Now they realizehomes and belongings. Bajaj Allianzand its partner organizations assessed further in two directions. First, it raised the premium from € 0.95 to € 2.95 a year. the value ofover 16,000 claims in 44 villages. Jamu- Second, it expanded to other districts, their investments.”na Bhaskar, former head of Bajaj Allianz especially inland areas that were lessregional office in Chennai, sees the be- prone to disasters, in order to grow the R. Devaprakash,nefit of the effort: “People are queuing portfolio and diversify the risk. By chal- Project Director, CAREup to buy these policies. They saw that lenging the product, Nisha may actuallyour team was on the ground in harsh have put wind in its sails.conditions and that the neighbors who xhad insurance really received money.” Watch the video on claims settlement after Cyclone Nisha PARTNER SPOTLIGHT CARE International x is one of the largest deve- CARE is convinced of the power of microinsurance lopment organizations in the world, with programs in to alleviate poverty. R. N. Mohanty, Chief Operating 70 countries. CARE invests in solutions that enable Officer of CARE India, says: “We realized that we people to move away from long-term dependency would need products that suited the requirements of and make a decent living for themselves. It has the poorest. Allianz was open to this idea and agreed operated in India since 1950. to design products for the poor. Now we have one of the largest NGOs and one of the largest insurance companies in the world joining hands in one of the best development partnerships in the private sector.” Design 13
  • 16. More health, please! – Assessing needs, Product demand & supply approximating risks T oday, there is a big gap between the demand for insurance, where health is the top priority, and its supply, which The mismatch between supply and de- mand can be explained by the relative complexity of the different products: The success of a microinsurance pro- duct depends on a deep understanding of the needs and risk profiles of the is dominated by credit life insurance. health and property insurance are much target group. Unfortunately, for low- more difficult to provide than life, acci- income households, this information Demand for health insurance dental death and disability insurance. is not easily available. Market research Demand studies show that low-income Issues of adverse selection and moral must be done – but in the slums and people are above all concerned with hazard occur more frequently. Claims villages, it can be difficult. the risk of health problems, followed by are also harder to assess and fraud more death and property loss. In Tamil Nadu, difficult to control. Market research is challenging these preferences reflect people’s actu- Access to transportation, telephone li- al risk profiles, as a CARE study showed. Essential product features nes, the internet and even postal service More than 1,000 households were asked The key success factor for any micro- is low in many places. Surveys, whether which shocks they had suffered in the insurance product is that it creates ob- by paper, phone, or in person, are diffi- past year. Health crises had occurred, vious value for the user. Three general cult to organize. Communication has to on average, more than once in every product features are essential: take the respondent’s background into household. All other events were much account. Dialects, technical terms and less frequent. 13 percent reported the • Small: Product premiums are afforda- cultural differences can create barriers. birth of child and 12 percent marria- ble, with a low overall cost and pay- Illiteracy is still common, with UNESCO ge, occasions that require lump sums ment plans adjusted to the cash flows reporting 750 million people globally of money. Accidents, death, and loss of of low-income people, with frequent, unable to read, often women in rural livestock happened in around five per- flexible, small installments. areas. Financial literacy is low and many cent of households. • Simple: Products are easy to under- people do not understand or are not stand, with few exemptions and sim- even aware of insurance. Supply of life insurance ple structures. Administration is kept The microinsurance supply looks com- simple to save time and enable out- Local organizations can help pletely different from the demand for it. sourcing to partners. Local organizations like NGOs can help Today, life insurance is the most widely • Service-oriented: Customers have re- overcome these challenges. They can available product, followed by accidental liable, convenient access to services organize surveys and focus groups death and disability insurance. Health in the urban slums and rural villages based on existing relationships. They and property insurance are still rare. where they live. know how to ask people about the risks they perceive, the losses they experi- ence and the ways they cope with them. Demand Supply Risk assessments remain difficult Risk management needs prioritized by Lives covered by microinsurance products low-income people in 11 countries (in millions) Risk patterns emerge from such assessments, but without historical data, HEALTH they provide a rather limited basis for actuarial calculations. Quality weather, LIFE mortality and health spending records are rarely available. The lack of data PROPERTY often forces companies to calculate ACCIDENT risks conservatively, making premiums *) DEATH & DISABILITY 1 Priority st higher than necessary. As experience 2nd Priority JOB LOSS *) grows, premiums can be adjusted. 3rd Priority *) No Data 8 7 6 5 4 3 2 1 0 0 5 10 15 20 25 30 35 Source: Microinsurance Centre (2007) Landscape Study14 Design
  • 17. How can we create products for low-income people?“If you want people to buy it, they have to see a need for it” Michael J. McCord on future products Michael J. McCord talked with us about current gaps and trends in microinsurance product development.Photo: Martin Herrndorf He is president of the Microinsurance Centre x, an organization dedicated to creating partnerships between insurers and delivery channels that result in low-income people around the world gaining access to quality microinsurance products. The center focuses on advocacy, market research and product development. How can the current microinsurance This leads to higher premiums than What is the role of regulation in product product offering be improved? necessary, at least initially. If these rates development? One issue here is value to customers. For are not tracked and adjusted moving Regulation can push microinsurance example, many customers don’t see cre- forward, this can result in low value for as it has done in India, where insurers dit life insurance as a valuable product. policyholders, and diminished uptake. are obliged to do part of their business Especially where it just covers the credit, in rural areas. Or it can facilitate, like it is considered only useful for the MFI. But the greatest barrier for microinsu- in the Philippines and Peru, where the Health microinsurance with traditional rance products now is delivery. We do rules under which microinsurance exclusions and reimbursement methods see products like credit life insurance operates have been clarified. That said, also offers limited value. Like every other because you can force people to buy it regulators must also be careful to not product, if we want people to buy it, they together with microcredit, so the adver- stifle experimentation. This industry have to see a need for it, and it has to be se selection risk and operational costs is still very young and we do not have easy for them to access. are virtually nothing. Once you get into clear best practices yet. Hindering expe- more complicated products, you have rimentation at this point could restrict Where do you see gaps in today’s product to explain them better and address its development. offering? these issues. There are huge gaps in health in- Who will drive product development? surance. When you look at the risk How can we overcome the delivery I believe that commercial insurance management strategies of low-income barrier? companies are where microinsurance people, their biggest issue tends to be MFIs have been a good first entry, be- will get its growth. They have the hospitalization. It happens suddenly, cause they can get insurance out in lar- systems and the insurance know-how. and in most cases they need cash to get ge numbers using existing marketing, Yet they have to go through a paradigm service. If they don’t have cash, they end training, and servicing channels. But shift. Microinsurance is not just the up selling the family cow in East Africa MFIs are limiting as well and we need to same old products with reduced pre- or the rice paddy in Cambodia. They move to other delivery channels such as miums and coverage levels. It requires do whatever it takes. When the crisis is retail outlets, post offices or electronic a dramatic refocus in every aspect of over, they return from the hospital and mechanisms. Where do you get the product development and delivery. do not have productive assets anymore. sales there, if you don’t have someone to actively explain it in a market that is We need more commitment and under- What are the barriers to developing very untrusting of insurance? This will standing from insurance company head products that create value for low-income require better market education to help offices. We need the senior manage- customers? people better understand, and indeed ment to understand that microinsu- The lack of data is an issue. Right now, appreciate, the value of microinsurance. rance has to be done in a different way. actuaries typically use whatever num- We do not need a different company to bers they can find to do the pricing. do it, but we need a different mindset! Design 15
  • 18. 3 Fatima, a Muslim Photo: Rustam Sengupta coordinator of a village OPERATIONS women’s self-help group, going for a monthly meeting with other members in Cuddalore, Southern India. How can we deliver on what we promise? • Delivering microinsurance requires a lot of • Leveraging existing networks like those customer interaction to collect premiums of community organizations, NGOs and MFIs and settle claims. helps to provide good service at affordable cost. • Infrastructure is weak in many low-income markets, driving up the cost of transactions. • Technology promises to increase efficiency, for example through better data handling and fraud control.16 Operations
  • 19. Self Help – Strengthening mutual health insurance in South India“Health care costs Health issues are a major cause of poverty, but health insurance is difficult to provide. Building on existing mutual insurance were responsible schemes, Allianz has found a viable model. for over half of all cases of decline into poverty in I n India, health issues often lead to fi- nancial catastrophe. Only 10 percent of Indians have some form of health Building on solidarity Across India, self-help groups have used mutual health insurance to face up to Indian villages.” insurance, and most of it is inadequate, according to the World Bank. More than this risk. Self-help groups are common in India, especially in the south, where 70 percent of all health expenditure is they exist in virtually every village. 10 to Indian National Planning Commission paid out-of-pocket. Studies in villages 15 women meet regularly, contributing found that health care costs were res- small amounts of money until there is ponsible for over half of all cases of dec- enough cash to start lending – for almost line into poverty. R. Devaprakash, Project any kind of need. A growing number of Director at CARE, observes: “It is health self-help groups also dedicate part of risk and the consequent expenditure the money they collect to mutual health that impoverish the poor. It drains their insurance. Members then pay health ex- income and burdens them with debt to penses out of this common fund. informal moneylenders at exorbitant rates of interest.” Sharing responsibility Mutual insurance has one major draw- The high cost of medical care also keeps back: risks are shared only within a small people from seeking help. Low-income group. Large claims easily exceed the re- people use health services less frequent- sources of the fund. This severely limits ly, and they rely more heavily on untrai- coverage and in many cases, local sche- ned health practitioners providing low- mes have gone bankrupt. Bajaj Allianz quality service. and CARE realized they could build on 3 Photo: Ray Witlin / World Bank A woman and her child consult a doctor. Operations 17
  • 20. Photo: Nicolai Tewes Photo: Rustam Sengupta Solidarity is the foundation of Indian self-help groups like these in Tiruvali. Awareness campaigns show the risks that can be insured. and significantly improve existing mu- tual health insurance schemes. In their “The innovative The product was piloted in Tamil Nadu in December 2007. One of the local model, smaller claims are managed by the mutual and Bajaj Allianz steps in for mutual health partners is Kodi Trust, an NGO offering microfinance services in several coastal larger claims like surgeries and hospital model helps us to villages of Kanyakumari District. Local stays. The model builds on the strengths NGO partners have helped communi- of both sides: the low cost and mutual control costs and ties set up committees to administer the control of local self-help groups, and the scheme, educate members and negotia- reach and technical know-how of Bajaj families to manage te special deals with health care provi- Allianz. CARE acts as an intermediary, working with local NGOs to set up mu- health risks better.” ders. By the end of 2008, the model had spread to three districts. By February tual schemes and build capacity. 2010, 3,100 families in 60 communities Michael Anthony, Head of Microinsurance, Allianz SE benefited from health insurance. Providing complete health coverage Bajaj Allianz enhanced mutual health Smart design controls cost insurance offers complete health co- a premium of € 6.30 per year for a family “The innovative mutual health model verage for entire families. It includes of four, the product covers expenditures helps us to control costs and families to subsidized medicine as well as con- of up to € 150. Of the premium collected, manage health risks better,” explains Mi- cessions for in-patient and out-patient two thirds remain within the group to chael Anthony, Head of Microinsurance care. Pregnancies are covered and indi- deal with standard claims, and one third at Allianz SE. Most of the day-to-day ope- viduals remain eligible up to age 70. For goes to Bajaj Allianz. rations in the health mutual are mana- * Percentage of rural people who live within 2 km of an No road, no phone – Infrastructure in low-income markets all-season road as a proportion of the total rural population. ** median of country averages INTERNET ACCESS 1 Interactions with low-income people can be 140 % MOBILE USERS 1 120 % complicated because they are often roughly ROAD ACCESS * 2 100 % COMMERCIAL BANK ACCOUNTS ** 3 connected. Some don’t even have access to a 80 % 60 % paved road. Many live in a cash economy. While 40 % still low, internet and mobile phone penetration 20 % 0% are increasing fast and will become ever more EAST ASIA & EUROPE & LATIN AMERICA MIDDLE EAST & SOUTH S U B - S AHARAN important in reaching the target group. PACIFIC CENTRAL ASIA & CARIBBEAN NORTH AFRICA ASIA A F RICA Sources: 1 World Bank (2007) / 2 World Bank (2006) Rural Access Index / 3 CGAP (2009) Operations
  • 21. How can we deliver on what we promise? Photo: Christina Gradl Photo: Rustam SenguptaFamilies camp in the lobby of a hospital in Delhi Village women are attending a self-help group take care of their loved ones.ged by the self-help groups themselves: only complete families. Another chal- medical infrastructure is manageable.”they collect the premiums during their lenge is moral hazard: the chance that The landscape is quite different in othermeetings and settle claims. R. N. Mohan- people will incur higher costs because states in India. Most people have to tra-ty, Chief Operating Officer of CARE India, they are insured. Here, trusted doctors vel as far as 100 kilometers to city hos-looks back on their efforts in 2009: “After act as gatekeepers, referring patients pitals. Nearby general medical servicesone year, we have seen that 80 to 90 per- as necessary to specified hospitals with are often poorly equipped with staff andcent of cases can be dealt with at the agreed-upon prices. Health education medicine. It is not uncommon to havecommunity level. It works very well and is also used to encourage people to pre- to pay bribes in public facilities that arenow we are trying to expand this model vent health problems. A third and final supposedly free of charge. Health mic-to other districts.” challenge is the risk of fraud, which Ba- roinsurance won’t change these short- jaj Allianz has found that social control comings by itself. But it gives peopleThe enhanced mutual health insurance mitigates quite effectively. Put simply, access to available health care servicesmodel also deals successfully with a you don’t cheat on your neighbor. and a greater, collective voice in choo-number of incentive issues that typi- sing and evaluating these services.cally challenge health insurance. One is Health insurance – but also health care?adverse selection: those who are more Health insurance is worth little withoutlikely to need help are more likely to doctors, nurses and pharmacists. “Lackjoin. The model avoids adverse selec- of medical infrastructure is one of thetion by admitting only direct referrals of key challenges we face,” agrees R. N. Mo-existing members, who have an interest hanty. “Fortunately, Tamil Nadu, where xin the sustainability of the scheme, and our project started, is a state where the Watch the video on self-help groups in India PARTNER SPOTLIGHT United Nations Development Programme In another study in India in 2007, UNDP put the (UNDP) x is the UN’s global development network market potential for microinsurance at 1.9 billion present in 166 countries. UNDP works with the private dollars. Anuradha K. Rajivan, leader of the study team, sector to harness the transformative power of market summarizes her research: “Catalyzing microinsurance forces for the benefit of disadvantaged people globally. can result in a win-win situation, combining commercial profit with the social benefits of In 2005, UNDP partnered with Allianz and GTZ to combating poverty through systematic risk assess the demand for microinsurance in India, management among the rural poor.” Indonesia and Laos. Operations 19
  • 22. Civil society at your service – Building partner capacity Delivering microinsurance NGOs, MFIs, rural banks, post offices and retailers are some of the organizations that deliver microinsurance today. They C ommercial microinsurance provi- ders typically rely on others to deli- ver their products in the slums and vil- Collecting premiums Premium collection has to strike a ba- lance between convenience and cost. all have one thing in common: insurance lages. Collecting premiums and settling Credit-linked insurance is easy: premi- is not their core business and their staff claims requires a lot of customer inter- ums can be linked to loans at virtually need to learn how to sell and support action and relies on efficient channels no extra cost. Automatic bank deduc- these products. In India, CARE found that to keep administrative costs low. tions are also easy, but only 30 percent thorough training and coaching were es- of people in South Asia and 20 percent in sential. CARE summarizes what worked: The partner-agent model Sub-Saharan Africa have bank accounts. While commercial insurers share the In-person premium collection improves Planning market with NGOs on the insurer side, customer contact, but it is expensive. As CARE asked NGOs what they expected they barely play a role on the delivery a result, it is common practice for deli- of the training beforehand, and adjusted side. NGOs, community-based organi- very organizations to collect premiums the agenda accordingly. zations (CBOs), mutuals and MFIs reach during existing meetings. more than two thirds of covered lives. Flexibility The partner-agent model combines the Settling claims From the CEO to the coordinator and financial and risk management know- Insurance proves its value when claims the field staff, everybody involved in the how of the commercial insurer with are due. Claims handling procedures initiative received training. Rather than the capability of these organizations to have to be simple and fast with efficient prescribing approaches, training and reach out to low-income households. fraud control systems. Documentation especially follow-up meetings provided a should be as simple as possible. Custo- platform to discover solutions together. The ideal delivery channel has trusted mers often find it difficult to fill in forms After all, partners have to fit processes relationships with a large number of or to obtain official reports like death into their existing operations. people with whom it is already engaging certificates. Some insurers accept certi- in financial transactions. While MFIs ficates from local police or village chiefs Tools are a natural choice, on their own they for life insurance claims. Reference materials like checklists and reach only a fraction of the potential product documentation greatly support market: in 2006, only 150 million people Co-payments, deductions and waiting the partner’s outreach work. Effective com- had access to microcredit. Other chan- periods until the first claim can be made munication formats, from storytelling for nels like post offices and retail shops are reduce cheating. The closer to the cus- group meetings to mass awareness-raising currently being explored. tomer, the faster the claims handling events, were also shared among partners. process and the more effective the fraud control. CARE’s primary insight: partner capacity- building is not a one-way street but a Insurer Delivery Channel collaborative exercise, where both sides Covered lives (in millions) Covered lives (in millions) have to learn continuously. 1 COMMERCIAL Photo: CARE / Sandra Bulling N G Os & C B Os MUTUAL GOVERNMENT 0.01 & PARASTATAL M F Is 2 RETAILERS ) Agents and brokers 1 OTHER ) Other retailers including funeral parlors 2 35 30 25 20 15 10 5 0 0 5 10 15 20 25 CARE project manager R. Devaprakash. Source: Microinsurance Centre (2007) Landscape Study20 Operations
  • 23. How can we deliver on what we promise? Cow control – Technology prevents fraud “Technology to process trans- “We acknowledge the strong need of farmers to insure their cattle. Small far- actions in the field is the key” mers only have one cow and are heavily dependent on their milk production,” Craig Churchill talked with us about the role of technology for Photo: Martin Herrndorf explains Dr. Ashok Patil, head of rural the delivery of microinsurance. He heads the Microinsurance business at Bajaj Allianz. “But for insu- Innovation Facility x. The Facility was launched in 2008 with rers it has been a loss-making business support of the Bill & Melinda Gates Foundation and is housed to insure cows because too often did at the International Labour Organization. The facility provides farmers claim an insurance loss that was innovation grants and technical assistance for the develop- not theirs. Market experts assumed that ment of microinsurance. a quarter of all claims were fraudulent. Furthermore, it was a costly affair to send an insurance assessor a long way What role can technology play in Does it require organizations to to a farm to see if a cow really died, let the future development of develop new skills? alone to find out if it was that cow that microinsurance? It’s a big change for insurers. If was insured.” Ear tags had previously I guess the jury is still out, but there insurers can manage huge numbers been used to identify insured cows and are big hopes that technology will be of people, they can make a profit, buffalos, but without great success. As able to play a significant role. One cru- as long as they can cover their fixed Craig Churchill notes: "There must be a cial need is information processing: costs. But while insurance compa- lot of cows without ears in India." storing huge volumes of data and nies are great at managing data, they managing it effectively. The key here is are used to fewer numbers of custo- Now, technology may prevent fraud. technology to process transactions in mers. Also, in low-income markets Radio Frequency Identification (RFID) the field, for example by using hand- you have to reduce the number of chips are injected under the cattle’s held devices. Moreover, data needs to forms and digitalize data to process skin. In case of death, a veterinarian be exchanged consistently across all it efficiently. Innovations like that are examines the cattle to determine the players involved – customers, health not only relevant for the low-income cause. During the examination the vet service suppliers, microinsurance market. There is no reason why these also scans the chip with a reader. This in- units, insurers and reinsurers. same processes couldn’t work at the formation is submitted to the insurance upper end of the market. company together with the claim and Which local infrastructure is needed to a photograph of the reader while scan- make technology work? What role could multinational ning the chip. Dr. Patil is optimistic: “We There is a lot of enthusiasm about companies play? have just started using this technology technology, but the two issues Multinational companies operate in in a controlled pilot project and hope to that come up again and again are many different markets, and can ex- turn insuring the cattle of low-income connectivity and electricity supply. periment in these to see what works farmers into a profitable business.” Internet and cell phone access could and move it around. That is the real be a great opportunity. But coverage strength. The challenge is to allow is low in many rural areas, so how innovations at the front end – arePhoto: Martin Herrndorf do you deal with that? And then people allowed to experiment? And the power cuts: you are typing in if they are allowed to experiment, do something and the electricity goes they have mechanisms to take the out. As solutions, one could use solar lessons from one place to another? cells, or cut up the information into smaller pieces for using SMS instead of worrying about the internet. Hope- fully we will see some large-scale successes here in the future, but it is still early days now. Operations 21
  • 24. 4 A monthly meeting at Photo: one of the village banks SALES established by CAURIE in rural Senegal. How can we convince our customers? • Explaining the concept and benefits of • Market creation usually starts with simple formal risk-sharing is at the heart of all sales products like credit life to establish a basic efforts. familiarity with the concept of insurance. • Marketing messages and channels have to • Interaction with customers enables reflect local circumstances. insurers to create higher-value products over time. • Building capacity among the outreach staff of partner organizations is required to provide good service.22 Sales
  • 25. Brand-new value – In the countryside,Building markets in Africa most peopleIn rural Africa, before Allianz can market its products, it has to have nevermarket the concept of insurance – as most customers have never heard ofheard of this service before. Allianz or insuranceI n 1997, Allianz took a majority stake in the French insurer AGF, present in10 African countries. In 2007, the com- vered by health insurance and 100,000 by credit life, according to a study by the Microinsurance Innovation Facility. at all.pany was fully integrated and Allianz People in the villages and small townsstarted to rebrand its services. Walking rarely go to the capital, and Allianz richthrough Dakar, the capital of Senegal, colonial building has little to do withposters announce the company’s “new their” at every step: downtown, wherethe government buildings are; at the sea A pan-African partnerfront, with its brand-new hotels; and in To reach out to this new market, Allianzthe north, with its upper-class neigh- looked for partners with establishedborhoods. Many of the posters show the networks in rural areas. It teamed upbeautiful colonial building where Alli- with PlaNet Guarantee, an internationalanz has its offices. The building is well organization that promotes microinsu-known to Allianz existing customers in rance across Africa. PlaNet Guaranteethe country, mainly businesses, better- has brokered nine partnerships for Alli-off families and individuals. anz in different African countries. Part- ners are MFIs that now secure their cre-Worlds apart dits with standard credit life insurance.In the countryside, the capital and itsmodern infrastructure are far away. CAURIE is Allianz partner in Senegal.Here, most people have never heard of The organization provides credit toAllianz. Many don’t know about insu- 21,000 women in 275 village banks.rance at all. 60 percent of Senegal’s 12.8 Within each village bank, the womenmillion people live on less than two dol- split up into solidarity groups of bet-lars per day. Only 300,000 of them are co- ween three and 10 women. Once they 3 Photo: Martin Herrndorf Posters announce the new brand “Allianz” in Dakar, the capital of Senegal. Sales 23
  • 26. Photo: Mathieu Dubreuil Photo: A woman from Senegal joins a microinsurance literacy campaign conducted A CAURIE customer with her child and investments, a herd of goats. by the MFI CAURIE. are organized, CAURIE’s loan officers Moreover, customers have to trust that nal materials, from handbooks for show them how to collect savings and the insurer will keep its promise. For- loan officers to illustrative posters for provide credit. Members stand in for mal contracts are worth little in villages women’s solidarity groups. All loan of- each others’ loans – one of the reasons where people often do not have addres- ficers are trained on the features of the CAURIE’s loan default rate to date is ses, maybe not even identity cards, do product, how to explain them in simple zero. To avoid the burden the death of not know their rights and could not terms, and how to articulate their be- a member can put on the whole group, enforce them even if they did. Here, nefits – including payout in case of a the MFI added the compulsory credit life Allianz works in a “cascade of trust”: claim. insurance to its product. Allianz relies on PlaNet Guarantee’s knowledge of local MFIs and ability to Listening to customers A cascade of trust manage microinsurance. PlaNet Gua- But the conversation with customers With this new service, CAURIE’s loan rantee trusts the reliability of Allianz. does not stop when contracts are sig- officers had to learn how to explain CAURIE trusts the advice of PlaNet ned. To provide even better service in the microinsurance. They found that the Guarantee, the loan officers trust CAU- future, PlaNet Guarantee and Allianz benefit of insurance is much harder RIE, and the women in the village banks have started dialogues with 300 micro- to get across than the benefit of credit, trust their loan officers. credit clients through local NGOs. Cus- because customers pay up-front for a tomers help loan officers better under- payout in case of a specific event in the Information about insurance, and Al- stand their needs beyond individual life future – for example when the insured lianz products in particular, is handed insurance – like coverage for the death dies. If that event does not happen, the- down this cascade. PlaNet Guarantee of a family member and the associated re is no benefit. has created a whole set of educatio- funeral costs or health expenses. This Islamic insurance – Responding to religious needs Insurance, in its Western form, is often seen as re participants stand in for the losses of others. in Indonesia. However, more and more banks conflicting with Sharia law. According to some Premiums from Islamic insurance may not be and other financial institutions operate on a Islamic scholars, the chance element in insu- invested in sectors such as gambling, porno- Sharia basis. With Sharia insurance and micro- rance resembles gambling and taking interest graphy, and alcohol. insurance, we can serve this potential market, is shunned as usury by the Quran. Takaful is a Allianz introduced a takaful product in Indone- which is growing steadily.” system of insurance in conformity with Islamic sia in 2006. Kiswati Soeryko, Director of Sharia law that has been used for hundreds of years. Allianz Life Indonesia, explains: “Takaful will not Essentially, it works like mutual insurance, whe- be the panacea for low insurance penetration x Watch the video on Islamic insurance in Indonesia24 Sales
  • 27. How can we convince our customers? Photo: Martin Herrndorf Photo: Mathieu DubreuilCAURIE field officers in front of their schedule for Allianz Partner CAURIE conducts an awareness campaign among members of a village bank.visiting the village banks.information helps Allianz develop newproducts that will create additional va- Only 2.6 percent euros in loans. Other products are being developed. For example, in Côte d’Ivoire,lue for these customers. of those living Allianz partnered with UNACOOPEC to provide funeral insurance. LaunchedIn Senegal, Allianz will add a livelihood under two in November 2009, the cooperative hadcomponent to its life insurance pro- sold 5,000 policies by early 2010, show-duct. The insurance will pay out a fixed dollars per day ing that clients value the offer. The spacesum for each day a borrower is unable for growth is wide open: The Microinsu-to work, to cover lost income. While not are covered rance Innovation Facility identified 14.7yet a full-blown health insurance, thedaily allowance is large enough to cover by insurance million people in 32 African countries covered by insurance – a mere 2.6 per-smaller medical expenses. in Africa. cent of those living under two dollars per day on the African continent.Opportunities across AfricaTogether with PlaNet Guarantee, Alli- People often learn about insurance for theanz has initiated similar processes in first time with simple products like creditother African countries, including Côte life. This in turn creates demand for mored’Ivoire, Cameroon and Madagascar. As and better products. These products re-of September 2009, the partners had co- quire more elaborate customer educa-vered more than 53,000 credit-takers and tion by experienced staff. Market creationinsured a sum of more than nine million is a learning process for all involved. PARTNER SPOTLIGHT PlaNet Guarantee x is dedicated to the Allianz cooperates with PlaNet Guarantee in a number promotion and development of microinsurance. of countries across Africa, where the organization The organization provides expertise in microinsurance manages acquisition and training of local sales projects and manages and controls microinsurance channels. Delphine Bazalgette, PlaNet Finance schemes, often in cooperation with MFIs. As a part of Germany, stresses that “it is very important for us the PlaNet Finance Group, it builds on the experience to work with private insurers and re-insurers to and relationships that PlaNet Finance has acquired develop and spread standardized microinsurance through 12 years of collaboration with MFIs globally products across countries.” on capacity-building and rating. Sales 25
  • 28. The ACB of marketing Explaining insurance microinsurance Bollywood-style In front of an improvised stage in rural M arketing insurance to low-income people means educating them about the concept and benefits first. and comprehension tested. Explanatory posters, illustrations, role play, songs and theater can support the education India, women watch amused as a drama unfolds: a couple from a lower caste gets up in the morning, the husband Many have not heard of insurance befo- process. goes to work, the wife to the local re. Those who have had contact with it self-help group. In the play, the women discuss whether they should buy micro- often have negative attitudes due to bad Buy insurance and whether they should tell experiences in the past. Demand can When a customer signs a policy, sales their men about it. The wife buys a po- only be created step by step. staff have to make sure he or she ful- licy but decides not to tell her husband. ly understands the cost and coverage. After all, she is in charge of the financial Awareness Policyholders will be dissatisfied if they resources at home. When the husband comes home drunk he hits his wife and First, customers need to get a sense of the misunderstand the claims conditions asks her why she spent so much time benefits of insurance. Protection, a trus- or expect a return after the policy ends. at the self-help group. The audience, ted partner in times of need, and a better Balanced incentives are important to around a hundred women sitting on the future for oneself and one’s children are ensure that staff does not oversell. Mo- floor, laughs out loud: the scene seems often the key messages used on posters derate sales targets and rewards for all too familiar. In the next scene, the or in mass media like newspapers and re-enrollment motivate staff to put the husband loses his leg in an accident. The couple is depressed – he won’t be the radio. Mass awareness campaigns interests of their customers first. able to work anymore. But then, the wife like those organized by CARE in India proudly presents the insurance policy. (see box on right) are very effective since Indeed, marketing does not stop with the They hug. Happy ending. Thunderous they also integrate the next two steps. sale – it begins there. Only when people applause. see that insurance helps them, through This scene takes place at the beginning Comprehension quick and unbureaucratic payouts, will of a mass awareness-raising campaign To make proper use of it, customers they be prepared to spend some of their for Bajaj Allianz and CARE’s microinsu- need to fully understand the product, small budgets on it. Customer satisfac- rance offer. Local NGOs invite members starting from a perception of the risks tion surveys during re-enrollment cam- of women’s self-help groups via posters they face. This is best achieved through paigns help to identify areas for impro- and word-of-mouth to learn how to direct interaction with customers in vement. Like in any market, good service manage risks better. The program takes place in the afternoon and lasts for two group meetings or individual consulta- and satisfied customers who spread the hours. Sketches like the one described tions where questions can be clarified word are the best marketing. above, puppet theater and presenta- tions explain the principles and benefits of insurance. After the show, women Photo: Rustam Sengupta © CARE International / Bajaj Allianz can sign up to a policy. They can also get further information from field officers visiting the local self-help group. CARE reports that 90 percent of clients have not heard of insurance before. But, as CARE Project Manager R. Devaprakash notes: “It is said that if you convince the women, you can convince the whole village.” Photo: Rustam Sengupta Educational materials like posters and drawings create awareness about the risks people face and how insurance can help to deal with them.26 Sales
  • 29. How can we convince our customers?“It’s a whole journey for a household from awareness to action” Rupalee Ruchismita talked with us about consumer education and Who should do the capacity-building inPhoto: © Rupalee Ruchismita the different tasks and actors within this space. She is the Executive financial literacy? Director of the Center for Insurance and Risk Management at the People need to learn to differentiate Institute for Financial Management and Research (IFMR x) in between types of risks and to respond Chennai, India. The Center focuses on product design and research, to the risks to which they are exposed advocacy and market-making in the space of microinsurance. with different products: savings, credit or insurance. Institutions they are already What are the challenges in microinsu- Who should be responsible for risk dealing with are best placed to provi- rance consumer education? communication? de this capacity-building, because it We are scratching the surface of the General awareness about insurance is requires systematic engagement and potential market for microinsurance. a public good. The state and regulator personal relationships. Engagement Consumer education should really aim or a multinational agency should in- could be weekly in a microfinance group at behavior change and induce greater vest in creating this market. In Colom- or monthly with a user group or coopera- market creation. Today, households use bia, all insurers have come together via tive. Building on existing channels helps informal risk hedging mechanisms like the industry association FASECOLDA to to reduce cost and create greater trust. their caste or occupational groups and invest in risk awareness because they institutions like marriage to manage perceive low-income households as a What are some interesting channels for risk. The important question is: “How future market. The state could encou- product marketing? do we encourage them to use formal rage such investment through tax reli- A lot of agencies in India and East risk transfer products?” ef and similar incentives to insurers. Africa have started to use video in which households themselves talk about their Insurance literacy efforts should be Are you aware of good examples of risk lives and their needs for risk manage- undertaken at three levels: General risk communication? ment. These videos are very hard-hitting, communication, risk management In Kenya, Farm Radio provides rural because you get the message from your capability-building, and finally informa- households with information related neighbor or somebody from the next tion about specific insurance products. to farming. Microfinance Opportuni- village with whom you easily identify. We need to unpack the challenge to ties, a resource center that promotes In South Africa, mobile phones are used identify who is best placed to undertake client-led microfinance, has embedded as a low-cost channel. When a mobile what parts of the education process. education about microinsurance in owner tops up with a pre-paid card, an the program. Insurance literacy will update is sent together with a microin- Where are the gaps in insurance literacy be more effective in reaching its target surance message. today? group when it is packaged with broader The gap is on the first level: clarifying education programs. What does it take to achieve behavior the range of risks a household is expo- change? sed to and identifying where insurance In Brazil, insurance companies do the In a recent study undertaken at IFMR we is the ideal solution. Currently, with education and the regulator makes sure found that behavior change is affected limited product innovation, there is there is no product-specific marketing. more by trust in the intermediary than a substantial amount of mis-selling, The regulator prescribes the message by consumer education. But that does leading to poor re-enrollments. While and format for risk communication. not imply that people are buying the microinsurance players do explain It also defines how contracts should right kinds of products. Consumer edu- their own products, we rarely see appear in terms of level of detail and cation takes time: it’s a whole journey investment in general risk communica- degree of fine print, given clients are for a household from awareness to tion which would assist the household often almost illiterate. This ensures action. We have not seen systematic, in answering the critical question, “How consumer protection, a critical aspect long-term consumer literacy cam- much insurance – of what type – do I often ignored in many developing paigns in insurance happen. So far need?” markets. there are only experiments. Sales 27
  • 30. 5 Dairy farmers deliver Photo: P. Muncie / World Bank their milk to their GROWTH cooperative. 14 million farmers are organized in dairy cooperatives in India. How can we be profitable and gain scale? • The 78 million microinsurance customers • Simple, standardized products and efficient worldwide (in 2006) represent only a small processes keep transaction costs low. part of the potential market. • Working with a variety of delivery channels • Microinsurance can only be profitable when helps to create a solid customer portfolio. large numbers of policies are sold because of the tiny margins per policy.28 Growth
  • 31. Cash Cows – Expanding the market with dairy federations When Allianz got started with microinsurance, it partnered mainly with MFIs as delivery channels. Lately, the insurer has expanded through other channels like dairy cooperatives in India.“The challenge A bout 70 percent of India’s 1.2 billion people live in rural areas, but Bajaj more than 17,000 staff members cater to their customers’ needs. To enable its is scaling up Allianz business is 90 percent urban. Clearly, there is space to grow. To reach rapid growth, SKS borrowed ideas from fast-scaling consumer businesses like the model out to these customers, Bajaj Allianz fast food chains: standardizing its pro- uses large, efficient delivery channels ducts, developing customer-centric while reducing that already exist. Kamesh Goyal, CEO processes and adopting factory-style of Bajaj Allianz, explains: “Fifty percent training modules. Adding nearly 50 ru- costs.” of India’s population lacks access to ral branches and 300,000 members a any financial products. We would like month, SKS offers Allianz a large andKamesh Goyal, to emerge as the biggest player in this growing customer base.CEO, segment. The challenge is scaling up theBajaj Allianz model while reducing costs.” In April 2008, Bajaj Allianz and SKS laun- ched Swayam Shakti Suraksha, a life Lessons from the fast food industry insurance product with a savings com- Working with SKS Microfinance brought ponent. With a premium of only € 0.60 scale to Allianz microinsurance busi- per week over a period of five years, cus- ness in India. SKS is the fastest-growing tomers receive € 220 in case of natural MFI in the world and the largest in India. death and € 565 in case of accidental It presently provides financial services death. If unclaimed, the deposit is re- to over 5.3 million customers in some funded with interest after five years. The of the remotest parts of the country. 345 simplicity of the product makes it easy to district centers, 1,676 village offices, and sell. After less than two years in operati- 3 Photo: Nicolai Tewes Large numbers of potential customers attend an awareness raising event in Tamil Nadu. Growth 29
  • 32. Photo: Nicolai Tewes Photo: Ray Witlin / World Bank A rice field in Tamil Nadu. 70 percent of India’s 1.2 billion people live The Village Dairy Cooperative Society collects the milk from local farmers. in rural areas. on, it already has over 2.5 million custo- copied the system, and in 1973, they es- brings it to the District Milk Union for mers. SKS is a strong engine for growth, tablished a common marketing federa- processing. The State Cooperative Milk but it should not remain the only one. tion at the state level. Impressed by their Federation is responsible for marketing success, Prime Minister Shri Lal Baha- all milk products. The experts at Bajaj New pastures for growth dur Shastri asked to roll out the model Allianz realized this hierarchical struc- To diversify its customer base, Bajaj Alli- all over India. Operation Flood was born. ture was an excellent delivery channel anz looked for additional delivery chan- for microinsurance, and developed a nels to reach the rural population, and Operation Flood has made India the customized insurance and savings pro- found them in India’s dairy cooperati- world’s largest producer of milk. Today, duct. Since early 2010, the product has ves. India’s dairy cooperative movement the dairy cooperative movement counts been sold in the northwestern state of was born in the town of Anand in the almost 14 million members in more Punjab to the almost 400,000 members northern region of Gujarat. In 1946, far- than 133,000 village-level societies in of Punjab State Cooperative Milk Produ- mers stood up against exploitation by 346 districts. In 2009, these cooperatives cers’ Federation Limited (MILKFED). Mr. milk traders and founded the Kaira Milk collected 110 million tons of milk, valu- H.S. Grewal, General Manager, Ludhiana Producers Union. They began collecting ed at € 30 billion, and production is still Milk Union said: “We are glad to be asso- and selling their milk directly to Bombay growing. ciated with Bajaj Allianz, as this will en- under their own brand name, Amul, cut- courage the rural population of Punjab ting out the traders who had used their Building on top of a pyramid to better mobilize their savings, giving weak individual bargaining positions Dairy farmers organize themselves in a them an opportunity to participate in and the perishable nature of fresh milk three-tier structure: the Village Dairy Co- investments and secure their future fi- to extract high margins. Other districts operative Society collects the milk and nancial requirements.” Literate low-income female – Indian customer profile Bajaj Allianz and CARE’s customer base is quite 99 % 93 % 80 % 54 % 24 % unusual for the insurance industry: almost all customers are women, most earn less than two dollars a day, and four out of five are using insu- rance for the first time. This picture is, of course, consistent with the project partners’ mission to empower the most vulnerable groups in society ARE EARN LESS THAN ARE USING WORK IN ARE WOMEN $2 PER DAY INSURANCE AGRICULTURE I L L ITERATE through financial services. SERVICES FOR THE FIRST TIME30 Growth
  • 33. How can we be profitable and gain scale? Photo: Ray Witlin / World Bank Photo: N.N. Photo: Ray Witlin / World BankThe Village Dairy Cooperative brings the milk to the District Milk Union. The District Milk Union controls quality and processes the milk.Buying security with milkBased on extensive research, Bajaj Alli- The dairy unions take care of most of the intermediation. Their staff have re- The dairyanz developed a very flexible and simp-le product available to all dairy farmers ceived in-depth product training from Bajaj Allianz and can explain the pro- cooperativein a specific union. It consists of life duct to farmers. They also collect pre- movementinsurance coupled with a savings com- miums directly when milk paymentsponent, helping policy owners to build are disbursed. As in the case of SKS, a counts almostassets over their lifetimes. The gene- standardized, simple product, effectiveric group policy can be customized by training, and an efficient organization 14 millioneach union with regard to risk covers,premiums and payment terms, as well lay the foundations for the business line to grow. If the product works well membersas benefits and conditions. The policy-holder can surrender the plan with no in Punjab, other federations can adopt the model. Thus, the dairy cooperative in more thanpenalty in case of financial contingen- movement may prove a fertile ground 133,000cies after the fourth year. The plan is for growth.kept as simple as possible and a one- village-levelpage form is all it takes to sign up. Theclaims process in the event the poli- societies.cyholder dies is also kept very simple,allowing for a quick payout to support xthe family. Watch the video on SKS in India PARTNER SPOTLIGHT SKS Microfinance x was founded in 1998 to pro- an investment of € 7.34 million. SKS founder Vikram vide small loans to low-income women in rural India. Akula comments: “The investment by a mainstream The MFI currently has over 5.3 million borrowers spread investor such as Bajaj Allianz is a vote of confidence in across 345 districts of India. It is the fastest-growing MFI SKS and in microfinance. Investment from a leading in the world with an annual growth rate of 188 percent. private insurer gives SKS greater stability and credi- bility, as well as a stronger capital base to extend our In April 2008, SKS and Bajaj Allianz partnered to offer reach to serve more low-income customers.” a microinsurance product. In July 2009, Bajaj Allianz acquired a 2.5 percent stake in the company with Growth 31
  • 34. Three keys to profitability Start slow, rise fast Market penetration of other W hile some microinsurance sche- sold, minus operating costs. Microinsu- services in developing countries mes have reached significant rance schemes must strive for efficiency scale, ensuring profitability is still a within each of these factors and they It may take a while for good ideas to challenge. The diagram below shows have a number of levers at their disposal reach scale – but as soon as they gain a the three factors that determine profita- to do so. The diagram captures these le- critical mass, the number of users can bility: the profit contribution of each po- vers and existing examples of how they rise exponentially. licy multiplied by the volume of policies are being used within Allianz. In 1997 only one percent of the popula- tion in developing countries used mo- bile phones; by 2007 this number had PROFIT reached 45 percent. In the same period, DESCRIPTION ALLIANZ EXAMPLE use of the internet rose from less than one percent to 17 percent. Microcredits still reach only about 2.85 percent of Premium Premiums should reflect In India, general insurance star- people in the developing world, but customers’ willingness to pay to ted with a low premium that had income enable volume. to be adjusted after the cyclone, but people had seen the value. have experienced steady growth over the last decade. – Cost per Special deals with hospitals, In India, mutual insurance Profit funeral parlors and other schemes have negotiated claim service providers can lower the preferred prices with hospitals 45 contribution cost per claim. and pharmacies. MOBILE PHONE per policy SUBSCRIPTIONS Caps limit the amount that can General insurance in India pays × PER 100 PEOPLE The profit contri- be claimed (or, alternatively, the up to six days of hospitalization I N D E V E L O P I N G C O U N T R I ES bution per policy number of claims). cover. sold depends on the 40 premium income minus the cost of all INTERNET claims made. Number of Prevention helps to reduce the General insurance policyholders number of claims. in India receive construction USERS × claims advice to improve the durability PER 100 PEOPLE of their huts. 35 I N D E V E L O P I N G C O U N T R I ES Coverage can be limited to Mutual schemes settle most high-cost, low-probability health claims in India and events. Allianz only steps in when costs exceed a limit. NUMBER OF 30 MICROCREDIT CLIENTS PER 100 PEOPLE Volume Reach MFIs, but also unions, retailers, SKS Microfinance in India IN DEVELOPING post offices, hospitals and other reaches 5.3 million customers. COUNTRIES service providers can all offer large networks. 25 The number of policies sold depends on the × reach of the distribution channels multiplied – by their effectiveness, Effectiveness Network members can receive All SKS credit-takers auto- given by the percentage insurance automatically with matically purchase credit life 20 of those in reach that their membership or other insurance. buy insurance. purchases. 15 Distribution Standardized products and Mutual health insurance covers group policies reduce the cost all policyholders under the and member of underwriting. same conditions. administration Technology can reduce SKS administers all transactions administration costs. in a customized data warehouse. 10 + Premium Links to loan or other pay- Premiums are withheld from Operating collection ments, account deductions and mobile payments can facilitate dairy farmers’ milk payments in Punjab. costs premium collection. 5 Costs have to be cont- Community-based Self-help groups collect rolled at every stage of organizations can manage premiums for mutual health the operation. part of the process. insurance in India. Claims Technology can help to control RFID chips help to reduce fraud fraud and to make transfers. in cattle insurance in India. 97 98 99 00 01 02 03 04 05 06 07 settlement 19 19 19 20 20 20 20 30 20 20 20 Simple products, with few Claiming credit life insurance exemptions and little in India and Indonesia requires Sources: Microcredit Summit Campaign Report (2009), documentation, keep just a death certificate from a International Telecommunication Union processes lean. local authority.32 Growth
  • 35. How can we be profitable and gain scale?Emerging markets –Where growthhappens “It is an extremelyBetween 1998 and 2007, the insurance long-term trend, and it will grow and grow”business declined in developed markets,whereas premiums in emergingeconomies increased. Today, customersin these markets are mainly businessesand better-off households. But the trend Jim Roth talked with us about the growth prospects of microin- Photo: Derek Clarkis clear: growth will come primarily from surance and the role of investment. He is a principal at LeapFrogdeveloping countries. Investments Ltd. x, a private equity firm that invests in and supports microinsurance businesses.N O N - L I F E B U S I N E S S D EVELOPMENTBY REGION -2 % 0 2% 4% 6% 8 % 10 %WO RLDINDUSTRIALISEDCOUNTRIES Microinsurance is en vogue right now. What is the role of financial capital forNORTH AMERICA Is it a fashion, or a long-term trend? the growth of microinsurance?WESTERN EUROPE It is an extremely long-term trend, Without investments, the sector willJAPAN & N E W L Y I N D U S- and it will grow and grow. Because not grow. A large number of localTRIAL I S E D A S I A N E C O N O M I E SOCEANIA insurance markets in developed insurance businesses are severely countries are essentially satura- capital-constrained. Many entre-EMERGING MARKETS ted, growth in these markets can preneurs and distributors haveSOUTH & EAST ASIA only come from taking market ideas about starting or expandingLAT IN AMERICA share away from competitors. The insurance businesses, and are also& THE CARIBBEANCENTRAL & only real growth in insurance is in severely capital-constrained.EASTERN EUROPE developing countries, and microin-AFR ICA surance is a crucial component of Larger firms may often employ theirMIDDLE EAST &CENTRAL ASIA insurers’ expansion into developing capital to develop markets that they -2 % 0 2% 4% 6% 8 % 10 % countries. Interest from insurers know better. When they go into a new Annual average growth rate 1998 –2007 and re-insurers confirms this. The market in a developing country, they small-scale pilots, NGO-type projects do what they did in the developedL I F E B U S I N E S S D E V E L OPMENTBY REGION and little businesses are going to fall country – serve the middle class. So -10 % -5 % 0 5% 10 % 15 % 20 % very much by the wayside in a few even within very large multinationalWO RLD years. We are really at the beginning companies, often very little capital isINDUSTRIALISED of what is going to be a vast industry, available for microinsurance today.COUNTRIESNORTH AMERICA driven largely by commercial insu- No business can grow without mo-WESTERN rers and re-insurers. ney, and insurance is no different.EUROPEJAPAN & N E W L Y I N D U S-TRIAL I S E D A S I A N E C O N O M I E S What do you see as promisingOCEANIA approaches to increase the reach ofEMERGING microinsurance?MARKETS The use of agents and aggregatorsSOUTH &EAST ASIA beyond MFIs is key. Religious ins-LAT IN AMERICA& THE CARIBBEAN titutions, cell phone networks andCENTRAL & retailers are distribution networksEASTERN EUROPEAFR ICA that haven’t been fully explored.MIDDLE EAST & I also think there are unrecognisedCENTRAL ASIA opportunities in employers and -10 % -5 % 0 5% 10 % 15 % 20 % Source: Swiss Re, Sigma No. 3/2009 payroll deductions. Growth 33
  • 36. The world of microinsurance The map shows the global landscape of insurance: In developing countries, where the majority of people lives on less than eight dollars per day, insurance penetration is low. Many of these countries have large populations which are growing at high rates. Reaching out to these potential customers can open up significant markets for insurance. Allianz is already present in eight developing countries with a variety of microinsurance products. CANADA Credit Life Insurance · Since March 2008 World population · Distribution with Each country’s size on the map is propor- UNITED STATES PlaNet Guarantee tional to the size of its population SENEGAL Source of map: Mark Newman, University of Michigan DOMINICAN Insurance MEXICO REPUBLIC penetration VENEZUELA EL SALVADOR TRINIDAD & Total business, premiums collected in % COSTA RICA TOBAGO PANAMA of GDP in 2008 ECUADOR 0 % — 1.9 % PERU BRAZIL 2 % — 3.9 % 4 % — 5.9 % CHILE 6 % — 9.9 % COLOMBIA URUGUAY ARGENTINIA Credit Life Insurance 10 % — 17 % · Since November 2007 · Distribution through Grey: not specified / Source: Swiss Re, Sigma No. 3/2009 Banco de la Mujer Share of low-income IVORY COAST population Funeral Insurance Share of population earning less than $8 · Since October 2009 per day in local purchasing power (%) · Distribution through the cooperative UNACOOPEC 60 % — 90 % 90 % — 100 % Source: IFC/WRI (2007) Next 4 Billon34
  • 37. Mutual Health Insurance · Since December 2007 · Distribution through CARE International General Insurance · Since January 2008 Credit Life Insurance · Distribution through CARE International · Since June 2007 Savings-linked Life Insurance · Distribution with · Since April 2008 PlaNet Guarantee · Distribution with SKS Microfinance, dairy cooperatives and others EGYPT INDIA RUSSIA ICELAND UNITED KINGDOM POLAND UKRAINEIRELAND GERMANY MICROINSURANCE ACTIVITIES CHINA FRANCE TURKEY IRAN SOUTH ITALY SPAIN PAKISTAN KOREA JAPAN MOROCCO ALGERIA BANGLADESH TAIWAN OMAN NIGERIA SAUDI PHILIPPINES ARABIA ETHIOPIA VIETNAM THAILAND KENYA MALAYSIA TANZANIA SRI LANKA AUSTRALIA NEW ZEALAND SOUTH AFRICA INDONESIA CAMEROON Credit Life Insurance Credit Life Insurance · Since September 2006 · Since March 2008 · Distribution through · Distribution with local MFIs PlaNet Guarantee MADAGASCA R Credit Life Insurance · Since March 2008 · Distribution with PlaNet Guarantee 35
  • 38. At the frontiers of microinsurance Microinsurance has already achieved some success. But many questions remain to be answered. These questions are not trivial, and realizing the full potential of microinsurance will require the joint knowledge, creativity and energy of all parties involved in the sector. IDEA • How can microinsurance enable users to • How can microinsurance help people The impact frontier take riskier but more productive manage increasing risks from climate investment decisions? change? • How can microinsurance work effectively • How can governments best support inno- with public safety nets? vation and expansion in microinsurance? DESIGN • How can data availability on demand and • How can insurance be combined with The product frontier risk profiles be improved on a large scale? prevention (like vaccination in health • How can we involve customers in the insurance)? process of product design? • How can we design holistic solutions that • What are sustainable business models include better health systems, housing for health and crop insurance, complex and infrastructure? products that are in high demand? OPERATIONS • How can mobile phones be used to pay • How can technology help to assess claims The technology frontier premiums, make claims and receive properly and settle them fast? payments? • How can IT increase the efficiency of back- • How can smart cards and other and front-office administration? identification systems help to avoid • How can bundled products (like a fraud and handle customer data building loan with property insurance) efficiently? facilitate operations? SALES • How can insurance literacy be improved • How can consumers be protected from The education frontier on a broad scale? fraud and over-selling? • How can delivery channel staff be • How can proper consumer information be educated and motivated to provide the ensured in channels like retail chains or best service? the internet, without personal interaction? GROWTH • What are effective delivery channels, apart • How can the quality and efficiency of The profitability frontier from MFIs, that can reach large numbers delivery channels be monitored and of customers? improved? • How can the cost of claims be controlled • How can products and processes be without reducing value to customers or simplified and standardized to complicating claims handling? reduce cost?36
  • 39. SubjectFurther Information Imprint Copyright © Allianz SE 2010The previous pages provided a basic introduction to the PUBLISHERchallenges of microinsurance and how Allianz and others Allianz SEare dealing with them. For those who want to go deeper, the Nicolai Tewesfollowing sources of information will prove useful: Königinstraße 28 80802 Munich Germany v AUTHORS Emergia Institute v Christina Gradl Martin Herrndorf v Claudia Knobloch Rustam Sengupta x REVIEWERS Michael Anthony, Allianz SEAllianz Knowledge Site Helen Barns, CARE InternationalThe site hosts a special chapter on microinsurance. It features case Delphine Bazalgette, PlaNet Finance R. Devaprakash, CARE Internationalstudies on Allianz own projects, interviews with experts, on-site videos as Mathieu Dubreuil, PlaNet Guaranteewell as useful data. Martin Hintz, Allianz Indonesia x Aline Krämer, TU München Pascal Plaziat, Allianz Africa Gabriele Ramm, Consultant to GTZFurther Readings Shuan SadreGhazi, United Nations UniversityCraig Churchill (ed.) (2006) DESIGN & LAYOUTProtecting the Poor: A Microinsurance Compendium x Martin Markstein, x derMarkstein.deInternational Labor Organisation LECTORJonathan Morduch et al. (2009)Portfolios of the Poor: How the World’s Poor Live on $2 a Day x Beth JenkinsPrinceton University Press PRINTStefan Dercon and Martina Kirchberger (2008) Lokay Druck Printed on FSC-PaperLiterature Review on Microinsurance P D F xInternational Labor Organization CURRENCIESAllen Hammond et al. (2007) All prices are quoted in Euros. The following exchange rates were used:The Next 4 Billion: Market Size and Business Strategy at 1 Indian Rupee = 0.0217 Eurothe Base of the Pyramid x 1 US Dollar = 0.7227 EuroInternational Finance Corporation and World Resource Institute (February 2010)Jim Roth, Michael J. McCord and Dominic Liber (2007) COVER PHOTOSThe Landscape of Microinsurance in the World’s 100 Poorest Countries x Top: Women in India paint their palms withThe Microinsurance Centre henna to celebrate weddings and other festivals. The decoration expresses joy and optimism for a future without sorrows.Useful Websites Microinsurance can contribute to theCGAP Microfinance Gateway well-being and peace of mind of x (Photo: © freenah/Fotolia). Bottom: Women in Tamil Nadu learn aboutMicroinsurance Network microinsurance in an x event organized by Bajaj Allianz partner CARE and a local NGOMixMarket Microfinance Information Exchange (Photo: © CARE International) x Microinsurance 37
  • 40. knowledge.allianz.com38 Microinsurance