ICMIF Seminar Main Findings on Microinsurance Study in CIMA Zone

ICMIF Development Network Seminar on Improving Access
to Insurance

Main Findings of the Study Conducted on
Microinsurance in the CIMA Zone

Nairobi
November 1, 2012
Laurent Bernard

Presentation

Study on Microinsurance in the CIMA Zone

1. Background and objectives of the study
2. Report of activities carried
3. Portrait of microinsurance in the CIMA zone
4. General observations

Réduire la vulnérabilité des familles
en cas de situations inattendues

Main Findings of
the Study
Conducted on
Microinsurance in
the CIMA Zone

presented by
Laurent Bernard,
Actuary and Microinsurance
Advisor

MICROASSURANCE

1. Context and Objectives of the
Study
1.1 Context
– Study conducted in 2011 on the behalf of FANAF and
CIMA with financial support from the World Bank.

Objectives:

– To perform an analysis of the supply and demand of
insurance and microinsurance.

– To make recommendations for adapting regulations to
improve access to microinsurance.

1. Context and Objectives of the
Study
1.2 Methodological Approach

Implementation in two phases.

–Phase 1: Mission in Mali in June 2010, presenting the
findings of the mission.

–Phase 2: Mission in three selected countries of the
CIMA zone to complete the portrait and make
recommendations (Cameroon, Senegal and Benin).

2. Report of Activities
2.1 Bibliographic Research
 Refer to Appendix C of the report

2.2 Phase 1: Mission in Mali
 Refer to Appendix B1 of the report

– Participation in the Monitoring Committee on
Microinsurance on June 14th and 15th.

– Many Interviews:
Supervisory structures
Insurance companies
MFIs
Mutuals

2. Report of Activities
2.3 Phase 2: Mission in Cameroon, Senegal and
Benin (Number of structures met)
Cameroon Senegal Benin Total
Public 10 11 8 29
Organizations/
Ministries
Insurers 16 13 7 36

Agricultural 4 1 1 96
Organizations (500,000 producers) (800,000 (5 million producers) (6.3 million
producers) producers)
Microfinance 6 3 5 14
Institutions (1.1 million clients) (1.4 million (900,000 clients) (3.4 clients)
clients)
Structures linked to 1 2 1 4
Health Mutuals (50 mutuals)
Other 1 association of 1 association 3
brokers + association serving health
of insurers insurance
institutions

Total 39 31 22 92

3. Portrait of Microinsurance in
the CIMA Zone

3.1 Current Situation
These are the 14 State members:

West Africa Central Africa
•Benin •Cameroon
•Burkina Faso •Republic of Congo
•Ivory Coast •Gabon
•Guinea-Bissau (since May •Equatorial Guinea
97) •Central African Republic
•Mali •Chad
•Niger
•Senegal
•Togo

3.1.1 Economic Environment

– Agricultural environment (Primary Sector):
• 62% of the active population rely on this sector
• <35% of GDP for most countries (9/14)
– Secondary and tertiary sectors
• Contribute a large percentage to the GDP
– Good economic growth for oil-producing Countries:
– Difficult for others:
• High rise in oil/food prices;
• International financial crisis.

3.1.2 Social Environment

– Total population over 135 million people;
– Very young population: over half less than 15 years
old;
– Large informal sector:
• More than 98% of the active population in some countries (Mali)
• More than 67% of GDP (Benin);
– Predominantly poor, especially in rural areas;
– Among the poorest countries:
– The Millennium Objectives will not be achieved by
most of them.

3.1.3 Agricultural Environment
– Food security is a national priority for many countries:
– Noteworthy national initiatives:
• National Agricultural Insurance Company of Senegal
(CNAAS) offers a range of agricultural insurance products;
• Strategic Plan for Recovery in the agricultural sector
(PSRSA) in Benin:
– Main features:
• Low levels of literacy and education,
• Limited incomes and relatively high vulnerability to external shocks,
• Limited access to credit;
– Structuring level:
• Well structured at the basic level (in Senegal, 46% of the producers
are reached by a GIE, a union or a federation);
• National organizations seem to experience problems in reaching a
large number:
• The cash-crop sectors are better organized than the food-crop
sectors:

3.2 The Demand for Microinsurance
3.2.1 Viewpoint and Features of the Target Market
• Survey concerning the various shocks suffered by family homes
– More than half of the family homes may have experienced at least one
shock in the past 12 months;

• 54% are cases of social shocks (illness or death);
• 23% of cases are economic shocks (ex.: increase in food prices, etc.);
• 15% are cases of environmental (ex.: floods) and health shocks (maternity-
related risks).

• Strategies to cope with shocks of various kinds used by
some States:
- Accelerated promotion of access to basic social services;
- Social protection, prevention and management of risks and disasters;

• For example, Senegal highights the need to make social protection a pillar of
its strategy to ensure a sustainable reduction of poverty.

3.2.2 Perspective of Insurers

• Public mistrust of insurers primarily attributable to insurance
settlements (car insurance);
• Fears about the solvency of the insurers;
• Misunderstanding of the added value of the life product compared
with its high cost;
• Despite a strong demand for the health insurance product, less than
3% of the population are covered
• Membership stagnation for health mutuals: the inability of the poor
to pay, public mistrust of the companies' liquidity to cover their
commitments, mismanagement.

3.2.3 Perspective of Agricultural Sector

Categories of risks faced by the producers:
– Climate risks: may be responsible for more than 70% of yield losses (Senegal)
• Drought: Desert and semi-desert areas are the most affected.
• Floods: Areas in the south (such as Benin) are often affected
– Health risks: for irrigated crops: less prone to drought risk, they are the most
important risks
• Parasites and Pests (ex.: grasshoppers, desert locusts etc.).
– Man-made hazards:
• Man-related events, i.e., fire, theft, accidents.
– Mechanical risks: may affect one out of six irrigation cultivators (Senegal)
• Example: Breakdowns of motor-driven irrigation system pumps
– Risks of accident, illness or death:
• Affect the producer's ability to generate income when they occur in the growing season.
• Related to a lack of cash flow in the off season
– Commercial or financial risks:
• Prices and marketing channels beyond the control of the producers.
• Lack of access to financing;
o in Benin, 91% of farms/home have no access to MFI loans;

3.3 The Offer of Microinsurance
3.3.1 The Public Social Protection System

– Social protection is a key component in poverty-reduction
strategies.
– However, coverage is primarily intended for government
employees and the formal sector.
• Risks covered: illness, accident, old age poverty, job instability, work
accident, lack or weakness of union protection.

– Willingness of several States to expand coverage to the informal
sector.

3.3.1 The Public Social Protection System (cont'd)

A Few Figures:
– Less than 10% of the population covered (except Senegal
12.5%) including:
• <2% by health mutuals
• <1% by private insurance;
– Households fund 52.1% of their health expenses on their own;
– 90% of the population still do not have a set of social
guarantees;
– Several systems are experiencing serious performance
problems and limits in their ability to meet the needs.

3.3.1 The Public Social Protection System (cont'd)

Actions implemented:

i. Reform and strengthening of formal social security systems;
ii. Expansion of social protection;
iii. Prevention and management of major risks and disasters;
iv. Social protection of vulnerable groups.

Measures Implemented by Governments:

• Gabon, Ghana and Rwanda: in-depth reform of the health system 
penetration rate respectively of 79%, 70% and 85%

3.3.2 Traditional Insurance Sector

World Insurance Market African Insurance Market
2.00% 17.00%
0 1.20%
South
Africa Africa
Others CIMA
98.80% 81.00% zone

In terms of premiums
In the CIMA Zone, the largest markets are:
• Ivory Coast: 28%
• Cameroon: 19%
• Senegal: 13%
• Gabon: 12%
 In total, they account for 72% of the CIMA market

3.3.2 Traditional Insurance Sector (cont'd)
• Credit insurance (banks and MFIs) is the leading
microinsurance product offered by the insurers;
• Little experience to date with microinsurance with the
exception of several inconclusive projects with health
insurance;
• Difficulty for insurers to properly define microinsurance and its
potential;
• The main obstacles are:
• Public mistrust;
• Lack of statistical data on the market;
• Inability of the information systems to handle large volumes;
• Difficulties in reaching the target clientele;
• Inability of insurers to develop products at affordable prices.

3.3.3 The Microfinance Sector

– MFIs in the CIMA zone reach approximately 8.3 million clients.
Approximately 25% of the population when dependents are
considered;

– The largest markets: Senegal, Ivory Coast, Benin, Burkina Faso
and Cameroon;

– The large networks predominate:
 The CIF is the largest network with 2.8 million members in five
countries;

3.3.3 The Microfinance Sector (cont'd)
Agricultural Sector:
– A significant number of households still don’t have access to microfinance (90%
of the producers in Cameroon and Benin);
– This sector is mainly funded by the State (subsidized credit lines);
– A 2004 study in Senegal revealed that 49% of the loans were delinquent;

Credit-Life Microinsurance
– A large number of MFIs cover their borrowers against the risks of death and
sometimes disability through:
• Agreements with external insurers
• Internal insurance funds managed by the apex institution (CamCCUL and CIF
networks)

Several innovative projects have been listed
- Mali, Senegal, Benin, Cameroon and Yvory Coast
- Ex: The PAMECAS network provides a health insurance product to its members
through a mutual health organization

3.3.4 The Mutual Health Organization Sector
• The informal sector (80% of the population) don’t have any social protection
worthy of the name.
• Health and life-expectancy indicators among the least favorable in the world;
• A brief history:
• After independence, several countries opted for free health care;
• After the 80s, public funding became inadequate;
• The creation of health mutuals has become the most widespread form of
microinsurance in particular in West and Central Africa;
• Each country in the CIMA zone averages about a hundred;

Current Situation of the Mutual Health Organizations
• 27% of the insureds with health insurance versus 6% of the premiums
collected
• Membership rate of the health mutuals less than 2% of the population (2009)

3.3.4 The Mutual Health Organization Sector (cont'd)
Limits and Constraints

Strategic and technical level
• Weakness of government support;
• Absence or inadequacy of the legal environment;
• Low level of involvement by health personnel and local authorities;
• Lack of mechanisms for monitoring and evaluating the policies and programs;
• Weakness in documenting and capitalizing on experiences.

Operational level
• Low penetration level of the target populations;
• Weakness of the risk management measures;
• Volunteer members of the management bodies and irregular meetings;
• Directors’ inadequate training in administrative and financial management.

In addition, 43% of members leave health mutuals because of expulsions,
suspensions, etc.

3.3.4 The Mutual Health Organization Sector (cont'd)

Findings:

• Dramatic situation for the health mutuals;
• Huge problem of financial access to health care;
• The mutual concept is understood and interests people;
 However, development is slower than expected;
• A diagnostic study shows:
The weak ability of households to pay the dues to the mutual.
The mistrust people have in the mutual’s promoters and management
system.
The poor quality of the care as perceived by the members.
The fragile financial situation of the majority of the mutual (difficulty in
reimbursing benefits);

3.3.5 The Agricultural Sector

Interesting Initiatives Listed:

– The CNAAS in Senegal:
– The AMAB in Benin:
– The project launched by Planet Finance and the Global Index Insurance
Fund (GIIF) in 2011:
– In Cameroon:
• The establishment of a credit-life insurance input product launched
by Allianz and other partners:
• Configuration and implementation of an insurance product intended
for animal farmers in southwest Cameroon.

3.3.5 The Agricultural Sector (cont'd)

Infrastructures that are necessary or facilitate the
establishment of agricultural insurance

– Projects for:
• education
• awarness
• prevention of diseases

Among the initiatives listed:

•In Senegal, Benin and Cameroon

3.3.6 Rotating Savings and Credit Organizations
(ROSCAs) - Tontines

– Presence of ROSCAs in most African countries;
– Purpose of the ROSCAs:
• savings and finance instrument;
• gathering place for friends to exchange ideas, social influence network;
• support group for good or difficult times (including bereavement).
– Acting in a specific social environment (often in an associational or
community context);
– Public confidence in the ROSCAs;
– Could become a worthwhile channel for the distribution of
microinsurance.

3.3.7 Information and Communications Technologies
(ICT)

– Significant growth of ICTs in the CIMA zone countries;
– 6 of the 14 countries have a penetration rate > 50% (2009)
– Possibility of buying credits from a mobile phone and using them
to:
• Pay bills, premiums
• Make money transfers,
• Reload phone cards.
– Currently a single microinsurance project has been identified in
the countries visited: Santé Phone in Cameroon.

4.0 General Findings
4.1 Challenges Specific to the Products

Life Insurance
• Credit-life insurance is a profitable product that has success (mandatory);
• No other life-microinsurance product has been identified;
• Under-developed life insurance vs. capitalization products.

Health insurance
• Two types of structures involved in the distribution and offer:
1. Public systems of social protection
2. Private players: insurers, health mutuals, microfinance institutions, etc.
• 10% of the population covered by the public system, while 2% to 3% by voluntary
plans offered by insurers, mutuals and other entities;
 Nearly 90% of the uninsured population.

4.1 Challenges Specific to the Products (cont'd)

Health Insurance (cont'd)

• As a result of the viability and coverage issues encountered by several
government systems, various initiatives have been put in place and
tested:
- Support for the establishment of health mutuals
 However, they also face several problems;

- Establishment of universal plans. Examples:
– Gabon and Ghana, which have reached penetration rates of 79% and
70% and which finance the plans with:
• An additional tax applicable to cell-phone operators, VAT and
financial transactions
• A government subsidy
• Contributions from beneficiaries;


General Issues of Health Funding

• The involvement of the State is still important to achieve coverage of a
large proportion of the informal sector;
• Insurers have little interest because of their perception of the viability
and profitability of microinsurance health products;
• Health mutuals are in a position to reach the clientele, but a poor
management capacity perceived by the population;
• Low level of ability of the population to pay the premiums.

 The example of Gabon and Ghana combined with the possible reform of Benin
show that there are possible solutions that can be adapted depending on the
country.


Key Areas Requiring Further Research

• Public perception of the quality of the care provided (challenges and areas for
improvement);
• In a context of expanding accessibility to health care, conduct a study on the
capacity of the current infrastructures to take charge;
• Identifying of the sectors to be improved and strategies for implementation.


Agricultural Insurance

– Product in great demand among the population;
– Number of insured producers still very marginal (<5,000)
– In its traditional form, it has several issues
• High management costs associated with the need to verify individually the
claims and causal links between insured events and the losses actually
incurred.
• Risk of fraud or moral hazard on the part of producers.

 Agricultural insurance based on an index has several advantages. However,
relatively little experience so far in the CIMA zone:
• Versus Asia and East Africa where it has been extensively tested over the past 10
years

Agricultural Insurance: Specific Challenges

Legislation
– Legitimate concerns of the legislature about the index product due
to the notion of basis risk* and consumer protection. However:
• The use of indices now seems to be one of the only devices able
to fully cover the risks faced by the small producers on a viable
and sustainable basis in the long term.

 The legislature should, therefore, accompany and supervise the
existing projects to ensure compliance by the client and minimize
basis risk.

*Risk that the compensation paid is different from the actual loss incurred by the producer


Agricultural Insurance: Specific Challenges (cont’d)

Investment in infrastructure:
– Strengthening of the existing databases may facilitate the implementation of
insurance based on the performance index.
– The increase in the level of weather coverage and/or exploration of satellite
technologies would facilitate the establishment of insurance based on weather
indicators (or NDVI).
– The implementation and supervision of producers through education, awareness,
prevention but also appropriate financing and marketing programs.

Reinsurance
• Access to reinsurance arrangements is still essential for large-scale application
of microinsurance projects.


Agricultural Insurance: Promising Areas

• Cash-crop sectors seem most promising
 They have professional organizations and cooperatives better structured to
reach a large number of producers;
 The frequent networking between organizations and agribusinesses makes
possible synergies or worthwhile combinations in the products offered
(example: funding could be combined with insurance)

• Animal and poultry farmers are also good candidates for agricultural
insurance.

4.2 Challenges Specific to the Structures Involved

Reinsurers

• There are very few reinsurers in the microinsurance market;
 Insurers should form a pool (ex.: Cameroon);

• Governments could play a role as aggregators:
• The State plays the role of reinsurer and directly assumes the risks
for which the losses exceed a certain predetermined level;
• The State plays the role of reinsurer (similar to alternative no. 1
above), but retrocedes a portion of the risk on international
reinsurance markets;
• The governments in the CIMA zone get together and jointly form a
subregional reinsurer.

4.2 Challenges Specific to the Structures Involved (cont'd)

Risk Underwriters: The Public System of Social Protection

– Problems encountered:
• Mixed performance and viability
• Limited response to needs
• Limited coverage (less than 10% of the population)

– To increase the number of persons covered, the involvement of the
State seems almost essential, namely:
i. By the expansion of current social protection to the informal sector;
ii. By integrating legal or tax measures to encourage the private sector
to become involved in it.


Risk Underwriters: Traditional Insurers

• Market concentration: automotive (IARD), capitalization (life), business
clients;
• Need to diversify in order to increase the rate of market penetration;
• Difficulties for insurers to process large volumes of policies:
• Comprehensive training and awareness plan among the population
would help to restore confidence.


Risk Underwriters: Mutuals and Cooperatives

Low rate of coverage of the population. Main causes:
• The ability of households to pay dues to the mutual.
• Mistrust by people of the mutual’s promoters and management system.
• The poor quality of care as perceived by the members.
• The serious management and profitability problems faced (The survival of
some depends largely on subsidies from various donors).

Several states are now analyzing the situation of the health mutuals and
are attempting to introduce reforms in the legal, regulatory and
operational framework.


Intermediaries and Distribution Channels
• The rarety of general agents and brokers in microinsurance;

• Microfinance networks are currently one of the main channels used for the
distribution of microinsurance products;

• However, current microfinance-related laws could hinder the development of
microinsurance through the MFIs:
• WAEMU zone: maximum or usurious interest rate set at 27% and it must
include the insurance charges.
– In rural areas, this rate could be exceeded in the event the agricultural insurance
is tacked on to the loan (premium of up to 10 or 15% of the amount insured).
• CEMAC zone: activities authorized under the regulations (insurance is not
mentioned).


Intermediaries and Distribution Channels (cont'd)

• ROSCAs: a social phenomenon to be considered for understanding the
needs and distribution of microinsurance products;

• Mobile telephony operators: reaches populations far from the major
centers;

• Others: The insurers believe that microinsurance should be linked to
microfinance but also to different types of associations.


Supervisory Authority

• The supervisory authority has the power and legal protection necessary
to fulfill its mandate;

• It seems that it does not have enough financial resources to supervise
the insurance market.

A set of factors is required to ensure the success of microinsurance. The
first is to create a “real value” for the poor by meeting these few criteria:

I.The product should meet the risks actually faced by low-income
households;
II.The timing of the payment of the premiums should try to coincide with the
cash flow of the insureds;
III.Coverage should be easy to understand and not misleading;
IV.The claim-application procedure should be simple;
V.The proportion of premiums used to pay the compensation should be at
least 60%;
VI.The expenses must be maintained at a level as low as possible and
rarely exceed 25-30% of the premiums;
VII.The microinsurer's net income (profit) should remain modest: at the
most, 5 to 10% of the premiums.
Every one of the microinsurance players, therefore, has a crucial role
to play to ensure that these winning conditions are met.

ICMIF Seminar Main Findings on Microinsurance Study in CIMA Zone

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Editor's Notes