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

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. Agenda
• Achmea and mutual insurance for development
• The broader perspective
• Challenges and lessons learned
• The role of reinsurance
2

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 development
3

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 inclusion
4

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 losses
5

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 poverty
6

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 Sen
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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
farming
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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 infrastructures
9

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 knowledge
10

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 poor
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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 insurances
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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 issues
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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 services
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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 region
15

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 collection
16

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
models
17

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 roles
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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
time
19

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 poor
20

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, Achmea
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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 subsidy
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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 capacity
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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
• Pension
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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 markets
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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 sector
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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 coverage
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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 solidarity
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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 & reserves
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30. Reinsurance
30 23/11/2010

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 Lives
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32. Reinsurance
■ Proportional
Priority /
Claims amount
■ Quota Share Own Retention
■ Surplus
Reinsured
■ Non-proportional
■ Excess of Loss
Claims amount
■ Stop Loss
■ Catastrophic loss
32 25/11/2010

33. Thank you for your attention
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