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

1. Subject
learning to insure the poor
microinsurance report
allianz 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
3,500,000
Number 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 2010
2 Microinsurance

3. Preface
Half 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 – in
the 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 37
2

5. EXPERIENCE STATE OF KNOWLEDGE PERSPECTIVE
CASE STUDY FACTS & FIGURES INTERVIEW WITH
Family Umbrella – Starting up Microcredit – Paving the way Jonathan Morduch
with credit life insurance in for microinsurance Page 6 “Microinsurance
Indonesia Half the world – The market can fill huge gaps
Pages 5–7
for microinsurance Page 8 in risk manage-
PARTNER SPOTLIGHT
Safety & opportunity – ment”
Page 9
GTZ Benefits of insurance Page 8
Page 7
CASE STUDY FACTS & FIGURES INTERVIEW WITH
Cyclone Nisha – Blowing general Building a future – Construc- Michael J. McCord
insurance down in South India tion advice to strengthen “If we want peo-
Pages 11–13 property insurance Page 12 ple to buy it, they
PARTNER SPOTLIGHT More health, please! – Product have to see a need
demand & supply Page 14 for it”
CARE International
Page 15
Page 13 Assessing needs,
approximating risks Page 14
CASE STUDY FACTS & FIGURES INTERVIEW WITH
Self Help – Strengthening mutual Infrastructure in low-income Craig Churchill
health insurance in South India markets Page 18 “Technology to
Pages 17–19 Building partner capacity Page20 process transac-
PARTNER SPOTLIGHT Delivering microinsurance tions in the field
Page 20 is the key”
UNDP
Page 21
Page 19 Technology prevents
fraud Page 21
CASE STUDY FACTS & FIGURES INTERVIEW WITH
Brand-new value – Islamic insurance – Respon- Rupalee Ruchismita
Building markets in Africa ding to religious needs Page 24 “It’s a whole
Pages 23–25
The ACB of customer journey for a
PARTNER SPOTLIGHT education Page 26 household from
Explaining insurance awareness to
PlaNet Guarantee
Bollywood-style Page 26 action”
Page 25
Page 27
CASE STUDY FACTS & FIGURES INTERVIEW WITH
Cash Cows – Expanding the Indian customer profile Jim Roth
market with dairy federations Page 30
“It is an extremely
Pages 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 33
Page 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 with
actually 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 India
the 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 with
the economic She also pays her youngest brother’s the MFI Activists for Social Alternatives
pyramid? 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 Hintz
Group treasurer Ibu Nur pays the group micro- Staff of an MFI after having received training from Allianz on how to explain, sell and service
credit 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 about
times more than in 2007. Premium in- family. Some customers spent more product characteristics.” The company
come has risen as well, yielding more on those funerals than they otherwise is now busy marketing the improved
than € 165,000 in 2009. Though this would have. Others gave to charity be- product – for its own benefit and that of
sum 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 Billion
8 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 insurance
down in South India
Microinsurance can help low-income people face up to increasing
climate risks and extreme weather events. But developing viable
products is challenging due to a lack of data and experience. “Over
98 percent
C limate change is rapidly altering
global weather patterns. And the
Matching up complementary capabilities
CARE International was one of the many
of those
world’s poor, who are least responsible non-governmental organizations (NGOs) affected by
for 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 disasters
their livelihoods or live in areas prone to with their immediate needs for shelter
flooding. From 2000 to 2004, 262 million and food, but also took a long-term view live in the
people 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 developing
in the developing world, according to
the UNDP.
key concern after the crisis, so CARE ex-
plored how insurance could help.
world.”
Human
Four years after the devastating tsu- At the same time, Allianz was investiga- Development
nami 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 UNDP
of India had rebuilt their homes and had been shocked by the impact of the
fishing enterprises. In November 2008, tsunami: while the giant wave had taken
another natural catastrophe – Cyclone the lives of 230,000 people and destroyed
Nisha – destroyed these barely regai- the property of millions, it had hardly
ned livelihoods. This time, however, touched the company’s balance sheet.
16,000 families could fix the damage Those who had suffered were simply not
quickly thanks to insurance they held insured. This needed to change. “As we
with 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 Bulling
Bajaj Allianz staff settle claims with policyholders Fishermen fix their boat, which had been broken by the cyclone.
after Cyclone Nisha.
partners agreed to review the product’s
performance annually, so that Bajaj Alli-
While it protected policyholders, Bajaj
Allianz young venture emerged from Cy-
“Many poor
anz could adjust its pricing in response. clone Nisha in dire straits. The company
had paid around € 800,000 in claims sett-
people didn’t
Facing the cyclone lements – nearly ten times the amount understand why they
Sales started in March 2008, with a fo- it had collected in premiums. Dr. Ashok
cus on the coastal area most prone to Patil, Head of Rural Business at Bajaj Al- should pay money
natural disasters. Within the first nine lianz, recalls: “We had to seriously assess
months, 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 realize
homes and belongings. Bajaj Allianz
and its partner organizations assessed
further in two directions. First, it raised
the premium from € 0.95 to € 2.95 a year.
the value of
over 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 less
regional 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, CARE
up to buy these policies. They saw that lenging the product, Nisha may actually
our team was on the ground in harsh have put wind in its sails.
conditions and that the neighbors who
x
had 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 Study
14 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) http://devdata.worldbank.org/data-query / 2 World Bank (2006) Rural Access Index / 3 CGAP (2009) www.cgap.org/p/site/c/financialindicators
18 Operations