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Webinar on Integrated risk management solutions

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When one thinks about risk management and finance, one immediately thinks about insurance. Insurance can be an effective way of managing risks that could otherwise result in large losses, which low-income people cannot cope with out of their cash flow or through the informal support of friends and relatives. To be most effective, however, insurance should be part of a broader range of financial services that includes savings, credit and money transfers, which together enable the working poor to manage a variety of risks.

To test new approaches, the ILO is currently working with partners in Asia to develop integrated risk management solutions. This webinar presents the experiences of four partners who are developing savings-linked risk management solutions to help members better manage risks related to health, calamity and life.

The featured partners include: KOMIDA, a non-profit MFI in Indonesia, Oro Integrated Co Operative (OIC) and Nabunturan Integrated Co Operative (NICO), two savings and credit cooperatives in the Philippines and CLIMBS, a cooperative insurance in the Philippines. The webinar presents lessons from the product development process and results from ongoing pilots.

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Webinar on Integrated risk management solutions

  1. 1. Integrated risk management solutions Date: Tuesday / 31 / March / 2020
  2. 2. Interfacing with the webinar system Advancing social justice, promoting decent work 2 Tell us what you think. Type your questions/ comments here even while the presentation is going on. These will only be visible to the presenters. Hide/unhide the control panel
  3. 3. Introduction to webinar and speakers Advancing social justice, promoting decent work 3 Panelist: Reinhard Marcellino Social Finance Fellow KOMIDA Moderator: Aparna Dalal Senior Research Officer The ILO’s Social Finance Programme Panelist: Preeti Sancheti Social Finance Fellow CLIMBS Panelist: Craig Churchill Chief The ILO’s Social Finance Programme
  4. 4. Risk is... Advancing social justice, promoting decent work 4 The possibility of loss. It can be imposed from outside or taken voluntarily in the pursuit of opportunities  WDR 2014
  5. 5. Perpetual cycle Advancing social justice, promoting decent work 5
  6. 6. A framework for risk management Advancing social justice, promoting decent work 6
  7. 7. Examples of risk preparation Advancing social justice, promoting decent work 7
  8. 8. Examples of risk coping Advancing social justice, promoting decent work 8
  9. 9. Rationale for developing integrated risk management solutions • Informal coping mechanisms offer limited protection • Less available to poorer households • Unreliable: Break down when needed most • Risk-induced losses exacerbate poverty • Formal financial services can offer greater benefits at a lower cost than informal mechanisms • Vulnerability to risk undermines the impact of enterprise loans • Risks adversely affect lender’s portfolio quality • Use of enterprise loans for other purposes demonstrates demand • Can deepen and broaden the impact of a financial institution Advancing social justice, promoting decent work 9
  10. 10. Different products for different risks Advancing social justice, promoting decent work 10
  11. 11. In managing risks, which product, when? • Insurance is appropriate for large losses that are unlikely to occur • Savings is the cheapest and most versatile, if one has built up a buffer • Savings is most appropriate for expected expenses – hence the need for financial education • Credit can be used to fill in the gap, assuming that the household has sufficient repayment capacity Advancing social justice, promoting decent work 11
  12. 12. Coping with risk: Savings or credit? Advancing social justice, promoting decent work 12
  13. 13. Children Education Saving KOMIDA
  14. 14. Key Fact Figures • 87% of parents around the world consider children education as a top priority (World Economic Forum, 2018) • Indonesia is ranked 13th as a country with the most expensive education cost (HSBC, 2018) • 20,000 USD is the amount of parents will pay until the children finish college in Indonesia (HSBC, 2018) • 15%-20% is the education inflation rate of Indonesia (Allianz Indonesia, 2018) • Only 1 out of 4 people in Indonesia that finish Senior High School, and only 8 % of the population finish college (Badan Pusat Statistik, 2017) Advancing social justice, promoting decent work 14
  15. 15. Advancing social justice, promoting decent work 15 We would like to reduce the external funding and focus on building internal portfolio. As of today the distribution of funds is 65-35. In 2020 We aim to make it 50-50.  H. Slamet Riyadi, Managing Director of KOMIDA
  16. 16. Main topics discussed with members • Savings purpose and behaviors • Risks experiences and their coping strategy • Future demand of family-related product • Children health & education plan Advancing social justice, promoting decent work 16
  17. 17. Customer Value Proposition – Building product features Advancing social justice, promoting decent work 17
  18. 18. SIPADAN Sprint Design Advancing social justice, promoting decent work 18
  19. 19. Product Prototype – Simpanan Pendidikan Masa Depan (SIPADAN) Contract Period: 6 months to 6 years Interest Rate: 4% Saving Target: IDR 125,000 up to IDR 15,000,000 Saving Amount: IDR 5,000 up to IDR 50,000 Withdraw Period: May - Jun & Nov - Dec Add'l Benefit: life insurance & special prizes for educational facilities ie: laptop Early withdrawal: penalty of 1x from weekly deposit Admin Fee: IDR 2,000 for closing account Advancing social justice, promoting decent work 19 Member’s perspective Product is designed to help members' children have saving for their educational needs. Saving can be used not only for school fees but also to buy other needs such as uniforms, books and school activities. KOMIDA’s perspective Product is designed to increase the amount of saving as well as the frequency of saving from members through contractual saving product. This is expected to increase internal funding from KOMIDA specifically through members.
  20. 20. SIPADAN Design - Pilot Advancing social justice, promoting decent work 20 Product Name SiPadan (Simpanan Pendidikan Masa Depan) Purpose Children Education Deposit Frequency Weekly Deposit Amount Min Rp 5.000,- Max Rp 300.000,-* Interest 4% Contract Period Min 6 month Max 72 month Restrictions on Withdrawal only after maturity in May-June & November-December period withdrawal before maturity is subject to a penalty of 1x weekly deposit. Trigger of withdrawal Deposit withdrawal must be accompanied by a withdrawal form in accordance with the above provisions, or if a member dies Amount of Withdrawal 100% from saving target + interest Frequency of Withdrawal 1x when matured Payment Method Cash through KOMIDA’s staff/branch Value Added Benefit Life Insurance for member + lottery reward Distribution Channel KOMIDA Branches Multiple Accounts? No Administration Fee Rp 2.000,- Insurance? Yes, provided by cooperative Insurance Charges & Benefit Insurance premium are deducted from saving deposit 1% per year (12 months), deducted when funds are sufficient each year. If member dies during the saving period, KOMIDA will pay 1.5 Mn IDR sum assured and saving will be returned. Change of Account Ownership No Change of Payment Term Ya - Grace Period As regulated by KOMIDA - Operational guideline As Attached Currency Rupiah
  21. 21. Pilot Highlight Advancing social justice, promoting decent work 21 “I want to save in SIPADAN, however I need to pay the loan first. Also I have other saving product in KOMIDA” 39 40 106 0 50 100 150 200 Total Customer Pilot Target SIPADAN Account Opening - Sukatani Branch Run Rate (Apr 26) As of Mar 23 Launch Date: Jan, 27th 2020 Duration: 90 days each branches Pilot Target: 320 accounts Total of Pilot Branch: 10 branches Launched: 1 branch (Sukatani) Total Customer: 39 We understand that the issue is not on the product design/features but related to the customer’s ability to set aside their come to save and their economic preferences Customer’s Feedback
  22. 22. Key Lessons • A proper market research is key in product designing process. • Through market research, we will have new insights that will help us find a right solution for customer (ie: mother expectation in the future is not about their health but about their children) • Low income mothers do save. • Its just a matter of their preferences and saving capacity. (ie: some mothers unable to save in SIPADAN because at the moment they still have loan with KOMIDA). Our challenge is then, how to come up with a product that is affordable but answering their needs? • It is better to have something small and slowly adding new features instead of having everything ready. The reasons are because: • time constraint. The faster we have something, the faster we can do pilot and get feedback, the better we make the product. • the product can be reviewed and adjusted accordingly instead of destroying the whole concept. Advancing social justice, promoting decent work 22
  23. 23. SAVINGS LINKED SOLUTIONS CLIMBS OIC NICO
  24. 24. Background • Mindanao Philippines : • Second largest island in the Philippines , all 3 organizations I’m working with are head quartered in Mindanao • Philippines experiences about 20 typhoons every year. • The devastating Sendong and Pablo typhoons in 2012 / 13 are still fresh in the minds of the residents • This year this region has experienced several earthquakes as well • Partners : • OIC – A large Cooperative in Mindanao region. 18 branches. 189K members • NICO – Cooperative 5 Branches, 19K members • Members are in different professions – from Farmers , daily wage earners , salaried workers and most rely on Co ops for their savings and credit needs • CLIMBS insurance provides the insurance to the members of the Co Ops. Mandatory Insurance is bundled with credit and savings. Voluntary insurance is also offered through the cooperatives to its members Advancing social justice, promoting decent work 24
  25. 25. Methodology in Product Design • One on one interview with members including FGDs • Interviews with staff • Questions about risks faced, coping mechanism, saving and credit behavior • Brain storming product ideas Advancing social justice, promoting decent work 25
  26. 26. Some customer insights (1) Advancing social justice, promoting decent work 26
  27. 27. Some customer insights (2) Advancing social justice, promoting decent work 27
  28. 28. OIC’s SAFE PLUS – For the Co Op Kid! 28
  29. 29. OIC’s Health & Disaster Savings 29
  30. 30. Launch Results • Product was announced at the General Assembly in week 1 of March and initial feedback has been encouraging • Accounts Opened: • 6 Health and Disaster – Savings collected PHP 22,000 ($440) • 4 SAFE Plus – Savings collected PHP 18,500 ( $370) • • Feedback: • Members are excited about the “bundled insurance” • Members would like a higher cover of insurance for Health and Disaster • Members wanted “ Fire” to be included in the perils covered. Advancing social justice, promoting decent work 30
  31. 31. NICO’s Health Saver • Need : To launch a health program for members and increase savings • Savings solution with bundled Insurance • Interest Rate 6 % per annum compounded annually • Min Amount - P6000p.a/ Max P30,000p.a ($120 - $600) • Term – 5 years • Withdrawals permitted anytime for Medical Emergency • Pre termination penalty to ensure persistency and ensuring savings are used for Health purpose only Advancing social justice, promoting decent work 31
  32. 32. NICO’s Health Saver • Bundled hospital insurance – Premium PHP 500 • 500($10) X 10 days / policy year – Member + Nominated Member 1 • 250 ($5) X10 days/ policy year – Nominated Member 2 • Member can nominate Parent / Spouse – (Age 18 – 69) or Children (Age 4-12) • Contestability period 15 days for natural disease and 3 months for pre existing diseases • Insurance premium to be deposited by member for first year • Second year onwards can be deposited or will be deducted from savings. • In case of hospitalization member to do the following: • Avail Phil health benefit. • Avail Hospital Income Benefit Insurance • In case of shortfall, withdraw from health saver account. • In case of further shortfall, apply for a loan with NICO.( Subject to approval for regular members only) Advancing social justice, promoting decent work 32
  33. 33. Launch Results • Launch Date 13th Jan • Total No of Members : 19,000 • Total No of Members that have opted for plan : 354 • Amount of Savings Collected :PHP 734,100 ($14,682) • Members response: • Positive response. • Some members want to save more than the limit of PHP 30,000($600) / annum Advancing social justice, promoting decent work 33
  34. 34. Key Learnings • Product awareness amongst members is a challenge • Neither of the SACCOS have an incentive plan for staff • We’ve introduced an incentive program for the first time • In all the 3 products we are trying to ensure that members use savings for expected expenses vs taking a loan • Also in all 3 cases we are highlighting the bundled insurance, often when the insurance is bundled, member is not aware of the insurance component. Advancing social justice, promoting decent work 34
  35. 35. Questions and Answers Advancing social justice, promoting decent work 35 Panelist: Reinhard Marcellino Impact Insurance Fellow KOMIDA Moderator: Aparna Dalal Senior Research Officer The ILO’s Social Finance Programme Panelist: Preeti Sancheti Impact Insurance Fellow CLIMBS Panelist: Craig Churchill Chief The ILO’s Social Finance Programme
  36. 36. Thank you! www.ilo.org/socialfinance

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