Achema and Insurance for Development


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Presentation made by Annette Houtekamer (Business Development Manager, ACHMEA, Netherlands) at the 6th ICMIF Development Network Seminar (1-2 November 2012; Nairobi, Kenya)

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Achema and Insurance for Development

  1. 1. November 1st, 2012 – ICMIF Development Seminar Achmea & Insurance for Development Achmea shares knowledge and experience in organizing financial security in order to contribute to solving social and economic problems for the more vulnerable sector of society.1
  2. 2. Agenda • Achmea and mutual insurance for development • The broader perspective • Challenges and lessons learned • The role of reinsurance2
  3. 3. Why mutual microinsurance? • Achmea CSR strategy: design, develop and deliver innovative mutual microinsurance & reinsurance solutions for disadvantaged communities anywhere in the world • Being a mutual insurer, founded by farmers with no access to formal insurance, Achmea sees it as her mission to use a small part of her resources to empower and enable communities to set up mutual, tailor made microinsurance solutions to be managed by themselves • Apart from being socially beneficial, this activity lets high- potential Achmea professionals experience the societal impact of insurance and the international dimension of our business. Thus, it provides a great opportunity for personal and professional development3
  4. 4. Identify the poverty traps where they really are • Climate change causes changes in temperature and water availability, this will impact the agricultural yield • Health is the source of a number of different traps • Lack of education & lack of critical information • Lack of Financial inclusion4
  5. 5. Climate Change & Food Security (1) • Tropical & sub tropical regions of the earth most effected by climate change • Climate change will exacerbate food security challenges/problems in Asia’s & Africa’s rainfed agro- ecological conditions • increased desertification in the Sahel & South India • increased rainfall in some areas, and longer drought periods in others • all negatively impacting crop yields with some predictions of 15% cereal yield losses5
  6. 6. Climate Change & Food Security (2) • Temperature increases lead to increase of pest attacks reduce soil fertility • Overall climate change will weaken food security and will exacerbate poverty6
  7. 7. Agricultural Risks & Food Security • Poor farmers apply low-risk, low-return inputs causing nutrient imbalances • Banks are reluctant to borrow to small scale farmers • Insurance is not available and if shocks occur productive assets have to be sold • Poor distribution and storage cause bad prices • Famines are caused by poor distribution and hoarding* Research by Nobelprice for Economy winner Amartya Sen7
  8. 8. Reduce vulnerability: focus on food security & health • Increase productivity: invest in water, soils and seeds • Ensure that diverse and nutritious foods are produced and that poor households are able to access such foods • Synergy: improvement of economic growth, health and education • Since 2004: African Green Revolution supported by World Bank, focus on smallholder farming8
  9. 9. Increase education & critical information (1) • Raising smallholder agricultural productivity increases incomes and allows families to purchase more food • Improvement of soils and seeds stimulate diet diversity and solve micronutrients lacking in the diet of the poor • Creating and transferring relevant new knowledge and technologies will help farmers achieve better results: combine action research, training & upscaling activities • Introduce drought-resistant crops to small-holder farmers • Help to establish high quality food storage facilities and other relevant infrastructures9
  10. 10. Increase education & critical information (2) • Focusing on agro-forestry and tree crops can also help to mitigate the effects of climate change through carbon sequestration (the Green Belt initiative) • Facilitate the delivery of credit and insurance facilities that are affordable and respond to the needs of the small-holder farmers • Provide farmers with the needed literacy skills to manage the credit and insurance coverage they will obtain • Work with partners in North and South based on specific competences and knowledge10
  11. 11. Financial Inclusion: Micro Insurance (1) • Formal insurance of any kind is rare for the poor • Health insurance, weather insurance and livestock insurance are more or less absent • With billions of poor people waiting to be insured even a tiny profit per policy could make a tremendous business proposition and would be a big help to the poor11
  12. 12. Financial Inclusion: Micro Insurance (2) • Difficulties to provide insurance: • Moral hazard • Adverse selection • Fraud • Administration costs • Correlated risks: dependent and spatially correlated especially in agricultural insurances12
  13. 13. Fanning the spark: mutual microinsurance (1) Lessons learned in Cambodia, India, Indonesia, Senegal & Burundi •Listen to poor people themselves •Understand the logic of their choices •Low levels of demand for agricultural insurance and health insurance are not only caused by lack of education •Agri-insurance products often only for one risk •Health insurance often only for catastrophic health events This creates a number of issues13
  14. 14. Fanning the spark: mutual microinsurance (2) Issues: • Credibility: premium is paid in advance, insured must trust insurer completely: • Agri index insurance basis risk may lead to loss without indemnification • In-patient health insurance may result in costly out-patient treatments without compensation from the insurer • Time inconsistency: people find it difficult to think about an unpleasant event in a distant future • Create a proposition of real value to the insured, and offer insurance as part of a wider package of services14
  15. 15. Why an integral approach? • Creating all sorts of small and lasting (thus financially protected) improvements together with the people and their representatives, kick starts new local initiatives and innovations • There is no one size fits all solution to overcome poverty • So we plead to combine all sorts of income-, health-, agricultural-, educational-, financial-, policy and institutional interventions into one integral intervention in a region15
  16. 16. Collective responsibility of the state, the insurance industry and the sector • Sharing risks • Socially responsible and sustainable orientation • Instruments for risk retention • Instruments to enhance risk bearing capital • Risk analysis models and data collection16
  17. 17. Moving the limits: the ACHMEA way • New forms of cooperation between public and private sector • Stakeholder cooperation • Integration with local cultures (tailor-made approach per sector) • Risk reduction by means of prevention and by means of self regulation • Crystal clear risk calculation models17
  18. 18. Challenges for insurance development in developing countries • Transparency of cost price and costs involved • Estimation of costs in relation to probabilities • Integration of financial systems and risk cultures • Understanding the notions of risks and the management of uncertainty • Repositioning of government and private institutions • Overall strategy: deeper understanding of various roles18
  19. 19. Insurance difficulties Some risks are difficult to insure because of problems of• Asymmetric information: • Moral hazard having purchased policy: individual acts to increase magnitude or probability of loss • Adverse selection potential insurance purchaser: better/more information on magnitude or probability of loss than insurer• Systemic risks • Correlated risks: multiple insured can suffer losses at same time19
  20. 20. Mutuals and mutual benefit schemes: perfect match with micro finance and local culture • Synergy: Savings Credit Social security •Ultimate responsibility, solidarity, mutuality via women self-help groups (India) or cooperatives (Sub Sahara Africa) •Mutual solution requires less solvency and enhances cooperation in a community •Tailor-made solutions catering to the need of the poor20
  21. 21. Our proposition (1) • Field interventions executed by local farmers and their cooperative organizations together with agricultural universities (e.g. Wageningen University & Research, University of Twente) and NGO’s like Oxfam, ZOA, Terrafina • Health interventions executed by local communities and their institutions together with NGO’s like Health Insurance Fund, Pharm Access, HealthNet TPO • Financial Inclusion interventions executed by local communities and their institutions together with Rabobank Foundation, Achmea21
  22. 22. Our proposition (2) • Reinsurance is imperative to solve catastrophic risks, but comes at a price (although reduced by Achmea Re) • Regulators may recognize the importance of mutuals for the development of the community and thus the economy • Stimulate a public private partnership • Government provides safety net construction and a start up subsidy22
  23. 23. Our experience • Product development and development of mutuality • Balancing needs and possibilities • Sustainable agreements with mainstream insurance industry and governments • Training on insurance and mutuality • Software development, implementation and training • Finance, Administration and Control • Risk analysis and risk calculation • Providing reinsurance capacity23
  24. 24. Some coverages we helped to develop Life Non life • Health • Crop weather (index/ indemnity) • Term life • Crop pests (rodents/birds) • Whole life • Livestock • Credit life • Savings life • Pension24
  25. 25. Essentials for success • Insurance needs to be part of risk management strategy • Focus on real value proposition for the insured • Find technical support to overcome initial set-up problems • Train all implementation actors • Work with efficient and trusted delivery channels • Develop weather data infrastructure • Transfer risk to international markets25
  26. 26. There are limits • Insurance has limitations: loss of lives or assets are NOT prevented • Increasingly frequent and intense events cause insurability issues • Foreseeable risks like sea-level rise and desertification cause insurability issues too • The only solution as we see it is to combine insurance with disaster risk reduction measures • This leads to collaboration between the insurance industry and the public sector26
  27. 27. Integral approach • Awareness raising and risk reduction • Insurers and governments can partner to make risk data and information systems available • Enabling conditions and regulation of insurance programs • Through legislation financial oversight and monitoring, government can provide incentives for insurance to promote risk-reducing activities • Risk reduction as a prerequisite for insurance • Insurers may require specific risk reduction measures and stimulate development of these, before issuing a coverage27
  28. 28. Opportunities for ICMIF members • Mutual approach has proven it value over the past 200 years and is a contemporary instrument nowadays • Getting involved may lead to new insights and knowledge for your own staff • It may bring new business opportunities in other regions: capital light business development • Noblesse oblige: mutuals have their origin in social involvement and solidarity28
  29. 29. Role of reinsurance • Prevents bankruptcy of insurer (cede catastrophic risks) • Stabilizes balance sheet of insurer (cede random fluctuations & high risks) • Enhances underwrite capacity of insurer (reinsurer accepts share of risks & provides additional technical reserves) • Pools risks and diversify regions • Relieves insurer from the necessity of setting aside large sums for solvency & reserves29
  30. 30. Reinsurance30 23/11/2010
  31. 31. Reinsurance: Quota Share 1200 1000 Insured amount 800 50% 600 Quota Share 400 200 0 1 2 3 4 5 6 7 8 9 10 Reinsured Lives31
  32. 32. Reinsurance ■ Proportional Priority / Claims amount ■ Quota Share Own Retention ■ Surplus Reinsured ■ Non-proportional ■ Excess of Loss Claims amount ■ Stop Loss ■ Catastrophic loss32 25/11/2010
  33. 33. Thank you for your attention33