Churchill Presentation In Dakar Plenary 3


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The presentation addresses the following questions: Should an MFI offer microinsurance? If so, through what institutional structure? If they partner with an insurance company, how to manage that relationship effectively? What products should the MFI offer?

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Churchill Presentation In Dakar Plenary 3

  1. 1. Microinsurance and MFIs Craig Churchill Microinsurance Innovation Facility International Labour Organization
  2. 2. Outline of the presentation <ul><li>Should an MFI offer microinsurance? </li></ul><ul><li>If so, through what institutional structure? </li></ul><ul><li>If they partner with an insurance company, how to manage that relationship effectively? </li></ul><ul><li>What products should the MFI offer? </li></ul><ul><li>Concluding thoughts </li></ul>
  3. 3. 1. Should MFIs offer insurance? <ul><li>Commercial </li></ul><ul><li>Lower credit risk </li></ul><ul><li>Enhance client retention </li></ul><ul><li>Bolster product profitability </li></ul><ul><li>Diversify income streams </li></ul><ul><li>Reach out to new markets </li></ul><ul><li>Social </li></ul><ul><li>Help clients to reduce their vulnerability </li></ul><ul><li>Improve client welfare </li></ul>For those that do, their primary motivations are:
  4. 4. 1. Should MFIs offer insurance? <ul><li>Inefficient or expensive way of addressing the risk of client death </li></ul><ul><li>Requires a different skill sets from savings and credit </li></ul><ul><li>Do not want to be distracted from core competencies </li></ul><ul><li>Wise to separate credit and insurance risks </li></ul>Possible reasons for not offering insurance:
  5. 5. 2. Institutional options Reinsurer Risk Carrier Policyholders (low-income households) Delivery Channel Administration platform Broker Microinsurance supply chain
  6. 6. 2. Institutional options <ul><li>Self-insurance </li></ul><ul><li>Partner-agent model </li></ul><ul><li>Microinsurance broker </li></ul><ul><li>Create an insurance company </li></ul>
  7. 7. 2. Institutional options <ul><li>Self-insurance </li></ul><ul><ul><li>only for basic products </li></ul></ul><ul><ul><li>if the MFI has > 10K clients </li></ul></ul><ul><ul><li>and technical assistance </li></ul></ul><ul><ul><li>and catastrophe cover for large losses </li></ul></ul><ul><li>Partner-agent model </li></ul><ul><li>Microinsurance broker </li></ul><ul><li>Create an insurance company </li></ul>
  8. 8. 2. Institutional options <ul><li>Protecta Compañía de Seguros , one of the first insurance companies in Peru to cater to low-income families, started its activities in January 2008. The ACP Group is Protecta's main shareholder and is also the main shareholder of Mibanco, Peru's leading specialized microfinance bank. With more than half a million lives covered already, the company aims to transform the insurance market in Peru and become a microinsurance leader in Latin America, just as MiBanco has achieved in the microfinance sector. </li></ul>
  9. 9. 2. Institutional options CARD Mutual Benefits Association (MBA) in the Philippines is a separate legal entity owned and managed by the members of CARD Bank and other institutional affiliates. Its Board of Trustees is composed of active members of the Association elected by the general membership. Members of CARD’s microfinance programmes are automatically enrolled with CARD MBA. As of July 31, 2009, the MBA had a total membership of 863,032 households, or more than 4.3 million lives insured. The total assets of the Association have increased from $164,000 in 1999 to $31 million in July 31, 2009.
  10. 10. 3. Making the Partner-agent model work <ul><li>Tell them what you want </li></ul><ul><li>Choose a trustworthy insurer </li></ul><ul><li>Involve the insurer in understanding customer needs </li></ul><ul><li>Manage claims* </li></ul><ul><li>Create a review committee </li></ul>
  11. 11. 3. Making the Partner-agent model work <ul><li>Eliminate exclusions </li></ul><ul><li>Maintain and analyse data </li></ul><ul><li>Determine the costs </li></ul><ul><li>Own the clients </li></ul><ul><li>Share the profits </li></ul>
  12. 12. 4. Products <ul><li>Credit life </li></ul><ul><li>Perhaps the best opportunity to expose large number of low-income people to insurance </li></ul><ul><li>It is a lost opportunity if they did not know that they were covered, or if they had a bad experience with the product </li></ul><ul><li>It needs to cover more than just the loan to increase the chances that policyholders will have a positive experience with it </li></ul>
  13. 13. 4. Products <ul><li>Integrated vs. stand-alone products </li></ul><ul><li>More efficient to “piggyback” insurance transaction onto another transaction </li></ul><ul><li>Link with credit limits value because people do not always want to be in debt </li></ul><ul><li>Links with savings have high potential </li></ul><ul><li>Does the MFI want to develop the capacity to deliver stand-alone insurance products? </li></ul>
  14. 14. 4. Products <ul><li>Health </li></ul><ul><li>Often the product for which there is the greatest demand </li></ul><ul><li>Illnesses can cause a significant problem for the MFI’s loan portfolio </li></ul><ul><li>If MFIs do offer health, perhaps focus on more basic products like hospital cash </li></ul><ul><li>Can MFIs offer health savings accounts for small, frequent health expenses? </li></ul>
  15. 15. 4. Products <ul><li>Insurance for the MFI? </li></ul><ul><li>MFIs should consider their broader insurance needs when negotiating with insurers </li></ul><ul><li>If frontline employees have the same coverage, it will be easier for them sell it to clients </li></ul><ul><li>Other coverage to consider: vehicles, property, fidelity, money storage and handling </li></ul>
  16. 16. 5. Concluding thoughts <ul><li>MFIs need to: </li></ul><ul><li>Reflect on their objectives </li></ul><ul><li>Develop in-house expertise </li></ul><ul><li>Actively manage their microinsurance scheme, even in a P-A model, because their reputation is at risk </li></ul><ul><li>Consider how ensure that low-income households appreciate insurance and are willing to pay for additional benefits </li></ul><ul><li>Persuade front line staff that insurance provides value for clients and the MFI </li></ul>