India: Micro-insurance sees 35% fall in costs

By M Saraswathy, Business Standard

Micro-insurance products, which offer coverage to low income households, have now become not just a means to penetrate rural areas but a business generator, too.

Insurers have started adopting cost-effective measures to boost renewal premiums in this segment, resulting in a rise. As a result, micro-insurance, which constitutes 20-30 per cent of the product portfolio of insurers, has seen a reduction in costs by almost 35 per cent. At the same time, there has been a rise in renewals.

According to insurers, renewal in micro-insurance is a difficult process. This is because the resources are limited and the processes have to be designed in such a way that costs are managed.

Yogesh Gupta, head (business procurement and micro insurance) at Bajaj Allianz Life Insurance, said renewal of policies have been very challenging in rural areas due to factors such as customers’ low literacy, low awareness, language barrier, lack of infrastructure, and ‘untraceable’ customers.

The company has used tools such as handwritten post cards in the local language, public announcements accompanied by drum-beating, etc, to remind customers to renew premiums. It also conducts street plays to educate customers.

“We faced a lot of challenges in the initial phase but our experience in this sector helped us design innovative and cheaper tools like use of postcards, tele-calling, panchayat meets and activities like ‘nukkad nataks’. These activities are conducted in villages across the country, reinforcing messages around the essence and importance of renewals,” said Gupta.

Effective use of local manpower is also a mechanism to boost renewal premiums for these products. In rural areas, income is seasonal and cash flow is irregular.

To drive renewals in this segment, insurers use rural bank branches, non-governmental organisations (NGOs), and micro-finance institutions (MFIs) that the locals visit regularly, to remind customer.

According to Aviva Life Insurance’s CEO & MD T R Ramachandran, the staff has to visit each customer’s house in to ensure renewal. This is a costly affair as it includes staff travel cost, daily allowance, etc.

“To make this a viable business model, MFIs typically club premium collection with other activities like loan recovery or financial literacy camps. The costs involved here are higher than in urban areas, where customers are able to visit branches or pay online or using causing bank services or credit cards. Keeping these constraints in mind, our products that are designed for the MFI segment are single premium or limited premium paying term,” said Ramachandran.

Aviva Life has been working with partners BASIX and Anjali Microfinance to bring down premium collection costs and make the process simpler. Notably, using the intermediaries’ infrastructure has helped renewals for this segment rise 20-25 per cent. In terms of number of policies, micro and rural insurance contribute close to 15 per cent to Aviva’s portfolio.

According to Gupta, Bajaj Allianz has achieved a persistency level of about 70 per cent in rural areas. The renewal premium is collected by a team of Bajaj Allianz from the branches of intermediaries. This effectively reduces cost, said Gupta.

Insurance companies promoted by banks also make use of their banks’ rural branches. G V Nageswara Rao, MD & CEO of IDBI Federal Life Insurance, said apart from MFIs and NGOs, they have been able to boost renewals in a cost-effective manner by operating though the rural branches of their partner bank. However, there are challenges in terms of cost and reach, according to insurers. After the recent MFI crisis, most MFIs have taken cost control steps and decided to close a few of their branches in rural areas, said Ramachandran. This has had its impact on renewal collection efforts.

According to experts, micro-insurance guidelines, which are to be announced soon, could increase the insurance penetration in rural areas. The guidelines talk about enabling local kirana, fair-price and medical store owners (who also act like banking correspondents) to sell microinsurance products. This is likely to improve renewal of premiums, too, experts said.

The micro insurance regulations prescribe a framework within which insurers can offer affordable micro insurance products to a targeted group of rural and urban insurable population. Last year, under these regulations, the Insurance Regulatory and Development Authority (Irda) had proposed to allow other categories such as district cooperative banks, regional rural banks, primary agricultural co-operatives societies, and individual agents to be eligible as micro insurance agents.

According to Irda’s annual report for 2011-12, while the renewal premium accounted for 60.31 per cent (up from 56.66 per cent in 2010-11) of the total premium received by life insurers, first-year premium contributed the remaining, that is 39.69 per cent (43.34 per cent in 2010-11).

Zambia: Importance of microinsurance products

A FORTNIGHT ago, I wrote an article titled Zambia’s insurance potential still untapped.

The same day the article came out, I got a call from Canada from one of the Zambians working in the Diaspora requesting to feature me on an internet radio show which has about 10,000 Zambian listeners across the globe.

Despite insurance being a ‘seemingly intimidating’ and ‘unpopular’ subject the show was interesting and lasted for about an hour. The point I am stressing is that despite being ‘unpopular’ the profile of the insurance topic is rising and is capturing the attention of many people around the world.

The perception is slowly changing from seeing insurers as ‘thieves’ to seeing them as partners who offer protection in times of adversity.

Coming back to our topic today I thought of featuring an article which appeared last year on Microinsurance. This is a link to last week’s article on the potential that our country has in insurance.

I stand to believe that if the industry is to increase penetration levels then it needs to reach the lower income earners who form majority of the population and this will be through Microinsurance products.

This focus is in tandem with that of the current Government which is ‘pro-poor’ as will be discussed below.

One of the campaign messages of the Patriotic Front Government led by His excellency, President Michael Sata, was the famous ‘more money in your pockets’ slogan.

This drew masses as it was appealing to the average Zambian considering that majority of the population are classified lower-income earners. After all ‘who wouldn’t want more money in their pockets?’

The message in a way became a reality to those who are in formal employment especially those who earn below KR2,000 per month by being exempted from paying tax.

This means more disposable income available to this category of the population which leads to buying assets such as vehicles, building houses etc.

These assets are largely obtained through loans and require property and life insurance.

This reality can be seen from the number of vehicles on our roads today. Traffic has increased tremendously and with government’s policy of reducing interest rates more and more people continue to access loans from financial institutions.

According to the Labour Survey of 2008 (conducted every four years) of the 5.4 million economically active people, 10 per cent were in formal employment while the rest were in informal employment with majority in rural areas.

About 73 per cent were employed in agriculture mainly under subsistence farming. Although these statistics may vary from the 2012 report which I am yet to read, the point being stressed is still valid i.e. majority are lower income earners.

Now is this part of the population covered by any form of insurance?

If not, could this be one of the reasons that only about six per cent of the insurable population is actually insured in Zambia?

Microinsurance is insurance with low premiums with ‘limited coverage targeted at low income earners.

A lesson from the Rwandan farmers on ‘kilimasalama’ which we discussed last week is a perfect example of microinsurance.

For a subsistence farmer, microinsurance can also help in times of bad harvest. When farmers are insured against bad harvest resulting from fire or bad weather such as hail or drought, they stand to benefit from insurance.

This can increase their appetite to take even more risks such as high yielding but less drought resistant crops because they know that even if drought strikes they will be compensated by insurance.

The general tendency for subsistence farmers in trying to protect their ‘little’ income is to produce high resistant type of crops which have low yield rates.

During times of hardship many low income earners are prompted to get loans with high interest such as ‘kaloba.’

The challenging part in microinsurance is on numbers. Without sufficient numbers, insurers will incur losses.

However, the good thing is that people in Zambia have learned to come together for a common cause especially in rural areas.

These groupings include farmers unions or cooperatives across the country or the famous cotton farmers of Eastern Province or talk about the fishermen of Mpulungu and other areas or the pineapple growers of Mwinilunga.

Suitable pilot projects in microinsurance can be launched to reach to such groupings and if these people are made aware of the benefits of insurance, they would be able to respond positively.

Some of the examples are the Professional Life product BantuBonse insurance, which is as low as KR30 or the Life After Life product by Africa Life which is as low as KR2.5!

To be continued…….

Send your contributions/comments or questions to email: webster_tj@hotmail.com or webster@picz.co.zm or on facebook search for Insurance Talk-Zambia page or call/text 0977 857 055

(The author is a chartered insurer with over eight years industry experience)

SOURCE: Times of Zambia

Nigeria: MFB customers look to micro insurance for loan guarantees

By Modestus Anaesoronye, Business Day Online

Customers of microfinance banks (MFB’s), including medium and small scale entrepreneurs and farmers who are unable to provide collateral for loans, are eagerly waiting for the development of micro insurance scheme in Nigeria.

The debut of this scheme, analysts have said, would provide loan guarantee insurance to the bank customers who will not need to provide collateral any more to access loans.

Some of the customers, who shared their experiences with BusinessDay, said collateral for access of facility from microfinance banks has been their major headache. They said it has either denied them the required facilities or make them to be under pressure from bank staff to avoid loan default.

Though they are unaware of the micro insurance scheme, they expressed excitement that any scheme that will take away bank pressure from them would make their business easier.

Roseline, one of the customers, said, “I don’t know about the assistance from insurance, but I think that will reduce the pressure from the banks”.

According to analysts, the success of micro insurance in other African markets like Sudan, Kenya and Malaysia particularly in development of their agricultural sectors is attributable to the successful collaboration between the micro finance institutions and the micro insurance companies.

This is what should be replicated in Nigeria as base point to drive micro insurance growth, so that those who have need for money to run their business can be engaged first, analysts noted.

“Micro insurance needs a wide base of customers to work. You need a certain volume of business for it to be viable, at least 20,000 farmers/borrowers. That means educating those small scale entrepreneurs and the farmers on the value of insurance while government support is also essential.

“The government would have to get a policy framework to make all this work, to ensure that the industry is regulated properly and those that are selling financial products are not misleading customers. That is even more important in a developing country like Nigeria”, an analyst said.

Fola Daniel, commissioner for insurance, said the National Insurance Commission recognises the importance of incorporating micro insurance and Takaful (Islamic insurance) as important vehicles for deepening insurance penetration in the country.

Daniel said a countrywide diagnosis on the viability of micro insurance reveals a huge potential that is yet to be tapped. “Indeed, the report of the study reveals a huge potential among the low income groups and has consequently been adopted by NAICOM.”

The commissioner noted further that the commission is at the final stages of developing a reliable micro insurance framework with clear rules for investments and an inherent flexibility with a view to giving insurance providers the needed clarity and freedom to use innovative means to reach this but underserved segment of the market.

Nigeria: How Mutual Benefits Created a Micro-Insurance Platform

Mutual Benefits Assurance is synonymous with micro-insurance in the Nigerian market. The Group Managing Director of the company, Mr. Akin Ogunbiyi tells the story of how his group became the champion of micro-insurance in the country.  He spoke with

Nnamdi Duru

The renewed focus on micro-insurance, a specialised platform for the provision of insurance services, particularly to the poor, low income and non-salary earners, has truly pushed it above other issues in the insurance market globally.

Before micro-insurance became prominent in Nigeria, a few innovative operators in the country, ventured into retail insurance, designing and selling low priced insurance products, or better still “scaled down version of regular insurances”, with a view to shoring up their bottom lines.

With micro-insurance gaining ground in the Nigerian insurance market, operators and stakeholders agree that this is the way forward but many operators are confused and do not know where to start.

In the Nigerian insurance market, there were a few fore-runners and a champion of micro-insurance and review of their exploits would serve as a guide to some other operators to get their strategies right.

Fore-runners of Micro Insurance

In the last 10 years, some innovative operators developed various products and distribution channels in order to increase their market share.  This propped up banassurance and retail insurance which many equated to micro-insurance before now.

When the International Labour Organisation (ILO) highlighted the necessary ingredients in products and distribution channels that could pass the test of micro-insurance, it then became clear that what many operators prided selves of having were retail insurance products and channels and micro-insurance.

Mansard Insurance

Mansard Insurance Plc, formerly Guaranty Trust Assurance was among the first to launch retail life assurance products, particularly the one which highlighted the fact that in return for N6 premium daily, the insurer would provide life cover worth N500,000 for any individual.

Mansard then leveraged its wide bancassurance distribution platform and technology-driven operational system to deliver innovative products to the growing middle class in the country.

Sovereign Trust Insurance

In 2008, Sovereign Trust Insurance Plc (STI) introduced the Sovereign Wellbeing Insurance Scheme for the Family (SWIS-F) to ensure adequate coverage of the generality of Nigerians, whether rich or poor.  The product, which premium is in the range of a few hundred Naira is still selling fast, particularly to people who would like to protect their household workers including drivers and maids, against unforeseen occurrences.

Micro-insurance and Alleviation of Poverty

The needs of the poor and low income earners differ in many ways from those of the middle class, rich and affluent in the society.  Most importantly, they need protection for their work tools, unemployment protection, sickness cover and funeral insurance.

The Group Managing Director of Mutual Benefits Assurance Plc (Mutual), Mr. Akin Ogunbiyi reasoned that micro-insurance was the only way insurers could alleviate poverty, empower low income earners and give them a decent level of living.  “Insurance is offering protection for both lives and properties against unforeseen incidents that put you back to the post you were before the loss. Micro-insurance is the insurances of the poor,” he said.

Putting micro-insurance in a proper perspective, the Team Leader of the ILO Micro-insurance Innovation Facility, Mr. Craig Churchill said: “Micro-insurance is not just a scaled down version of regular insurance… the products and processes need to be completely reengineered to meet the characteristics and preferences of the low-income market.  It is not a specific product or product line. It is also not limited to a specific provider type. Micro-insurance is the provision of cover to a specific market segment, i.e. low income persons.”

Micro-Insurance Champion

The Mutual Group, led by its Group Managing Director of the company, Mr. Akin Ogunbiyi was the pioneer of micro-insurance and still remains the leading company if not the only operator doing micro-insurance in the true sense of it in Nigeria.  Before then, Mutual had a retail insurance product, personal accident cover which goes for N1,000 for N100,000 sum insured.

On how the money spinning venture started, Ogunbiyi said after reading the book, “Wealth at the Bottom of the Pyramid”, he started thinking about how to deliver insurance services that actually meet the needs of people at the lower end of the pyramid, the poor and low income earners.

He recalled that the wherewithal including the product mix and the necessary skills to deliver this were not available and therefore, he consulted the International Cooperative Mutual Insurance Federation (ICMIF), the umbrella insurance company worldwide for micro-insurance services and you have over 66 countries.

“We sent our people ICMIF for specialised training and with its support we were able to come up with the necessary products and services that meet the needs of the common people.  There was a product mix that brings out empowerment with which we were able to achieve the objectives of micro-insurance,” he said.

According to him, the group set aside funds to reach these people, sector by sector and set up cooperative movements for them.  It also came up with a structure that made the groups manageable and homogenous, created a common insurable risk and designed common insurance products to meet their needs.

According to him, Mutual targeted poverty alleviation with micro-insurance by empowering the people, many of which were poor and not bankable.

“We brought them into homogenous groups, made them bankable and empowered them with access to little credits to increase their sales.  We also educated them on how to make their sales better before providing them micro-insurance,” he explained.

Mutual Model Cooperatives (Tomato Sellers)

He recalled that the group organised tomato and pepper sellers at Oyingbo market into called Mutual Model Cooperative Society, adding that there were about 200 of such cell groups in the market with each cell having not more than 50 members.

On how this works, he said: “We give N500,000 or more to a group of 50 tomato sellers in any location to buy stock.  If Mrs. A takes N20,000 worth of tomato and Mrs. B takes N10,000 worth of tomato, they sell according to their respective capacities.  They return the capital to the common purse and keep their profit.  We also let them know that for this empowerment, there is another aspect, insurance.”

Airport Taxi Drivers’ Cooperative

Seeking ways to alleviate poverty without endangering investments, the group in aligned itself with the worries of the Federal Airports Authority of Nigeria (FAAN) on the state of airport taxis. It partnered airport taxi operators by extending soft loans to them to enable them purchase new cars and repay over an agreed period of time.

The group invested about N630 million in this venture and the operators were able to acquire new cars for their business. In addition to making investment returns on the money invested, premium income is earned on the life and non-life insurances for the vehicles and their drivers.

Mutual Transport Cooperative (BRT)

With group partnered with relevant public transportation stakeholders in Lagos State to establish Mutual Model Transport Limited, a LAGBUS sub-operator which currently operating a fleet of 110 buses at the last count and invested N2.5 billion in this venture.

“We grouped the over 400,000 members of the National Union of Road Transport Workers (NURTW) across various garages in Lagos into cooperatives. Each member was to save certain amount daily and we empower them to buy BRT buses and repay both principal and interest over a period of time.  All insurances on the vehicles come to the group.

Mutual Micro Finance Bank

The credits extended to all the Mutual cooperatives and daily savings of members of the groups is carried out through the Mutual Micro Finance Bank (MFB) Limited.  The group acquired 80 per cent stake in an existing MFB with paid-up capital of N20 million and injected N680 million into it.  Currently, the MFB has about 40,000 accountholders and all of them insured by Mutual.

“We have about 35,000 policyholders from that institution, which means we have created 35,000 new policyholders for Mutual Benefits Assurance,” Ogunbiyi said.

Safe Guard Insurance

Now to how the company achieves the original purpose of providing micro-insurance services to the low income earners, Ogunbiyi explained that the micro-insurance specialist offers petty traders a disability cover, Mutual Safe Guard Insurance, an all-risk policy that covers the tomato sellers for death and permanent disability for N100,000 arising from accidents and it covers the tomato they are selling on a reducing balance basis.

We did not only them bankable, we also introduced record keeping to them and for N100,000 insurance cover, we charge only N50 premium for three days cover, he said.

Claims Experience

The Mutual boss also spoke on the claims experience on micro-insurance products saying “these N50 we have been taking are almost for free, in fact, we are the ones telling them when claims situations arise.”

“We have only paid one claim on this Safe Guard to a woman selling tomato that had malaria and collapsed in the market.  We paid N4,500 for the remnants of her wares and N10,500 for the hospital bill t and if she had died, we would have paid a death benefit to her family for the N50 premium she paid” he said.

The Mutual Group

Mutual Benefits Assurance Plc is a composite risk underwriting group with 9 local subsidiaries and a subsidiary company in Liberia and Cameroun respectively.  The subsidiaries include Mutual Benefits Life and General Companies, Mutual Benefits Assets Management Limited, Mutual Homes and Properties Limited, Mutual Micro Finance bank Limited, Mutual Model Transport Limited and TSF Securities and Investment Limited and Charks Investment Limited, Ogunbiyi, who clocked 50 today, is an Economist, consultant and insurance professional per excellence.  He is a graduate of Agricultural Economics from the University of Ife, an alumnus of the Lagos Business School and the International Graduate School of Management, University of Navarra (IESE) Barcelona, Spain.

An Associate of the Chartered Insurance Institute, London, and the Mutual boss had his insurance training in NICON from where he moved to start the Finance and Insurance Experts Limited, a multi-disciplinary consultancy firm, as pioneer Associate Director/Chief Executive Officer.  He also serves on the board of many other companies.

Meanwhile, the greatest strength of the Mutual group truly lies in micro-insurance, alleviation of poverty, empowering low income earners and insuring their financial risks.

Micro Insurance Potential Today, it covers over 500 million population today

Courtesy: Munich Re.

 

Mutual’s Micro-insurance Initiatives

S/No	Details	Amount Invested	Policies Taken
1.	Airport Taxi	N630 million	NA
2	Mutual Model Transport (BRT)	N2.50 billion	NA
3	Mutual Cooperatives (Oyingbo Tomato Sellers)	N680 million	10,000
4	Mutual Micro Finance Bank	NA	35,000

 

India: MFI-fuelled suicides in AP had insurance cover

By B Dasarath Reddy, Business Standard

Borrowers from microfinance institutions (MFIs) in Andhra Pradesh were not aware that they were insured and that a part of the upfront deduction from the loan was going towards premium payment, according to the state government.

This intriguing fact came to the notice of the government authorities after a spate of suicides, mostly committed by the victims of multiple loans extended by MFIs because representatives of micro lenders allegedly coerced the defaulters.

B Rajsekhar, chief executive officer of the government-run Society for Elimination of Rural Poverty, said: “No borrower had ever received any mandatory annual statement or the premium receipt from any insurance company regarding his life cover, though every MFI had made upfront deduction from the loan towards the coverage of the loanee. Nor were they informed why the amount was being deducted.” The life coverage was equal to the loan taken by the borrowers, Rajsekhar said.

Following the suicides and public anger against the alleged coercive practices of micro lenders, the government had issued an ordinance in October 2010, banning MFI operations. As the officials also came to know that the death claim cheques were being taken by the MFIs, the rural development department had lodged a complaint against the insurance companies during the same time, said Rajsekhar.

“After finding out directly from the borrowers about the amount deducted upfront from the loan by the MFIs, we arrived at a figure of between 35 per cent and 65 per cent as the effective rate of interest being charged by these companies,” he told Business Standard.

About 120 poor borrowers had reportedly committed suicide under financial duress till MFI operations were banned. Teams formed by the rural development department had identified close to 98 deaths as being immediately triggered by coercion of MFI employees in the field. These teams had also worked with police to file complaints and chargesheets against the people allegedly responsible for the deaths of these men and women.

Recently, the MFIs had approached the high court and got a stay on the alleged harassment by the state government in the light of these actions.

ID Summit: Microinsurance can empower women

From Insurance Today

The rise and growth of microinsurance in developing parts of the world can play a central role in the empowerment of women, according to Mark Byrne, founder and chairman of investment vehicle Haverford.

Upwards of 80% of all microinsurance products have so far been distributed in favour of the male population in the developing world, but Mark Byrne, founder and chairman of investment vehicle Haverford, said developing and promoting products specifically tailored for women could play a prominent part in strengthening the role of women in some of these societies.

“There’s an enormous opportunity to make a contribution to the empowerment of women in the developing world,” Byrne said. “Most of the product that has happened already has been pretty male-centric.”

Microinsurance is one of the ultimate examples of high-volume/low-premium insurance coverage around and is typically offered in developing economies where the penetration of traditional risk-management products is not very high.

According to Byrne, microcredit has already changed the lives of between 150 million to one billion people around the world. But microinsurance is only getting started, as it has the potential to help some three billion people around the world.

As he explained, helping women get a stronger foothold in developing parts of the world is one example of how insurance can assist society: “Being able to offer a woman who wants to start a cloth co-operative or a roadside shop insurance to do that will have an enormous impact in the third world over the next generation.”

He added: “Having been working on it for a couple of years now, I have to say I remain extraordinarily excited about the potential for microinsurance to make a very big impact in the world.”

 

LINK TO ORIGINAL ARTICLE

West Africa: Microinsurance as tool for poverty reduction

By Modestus Anaesoronye, Business Day Online

Insurance is undoubtedly one of the most ingenious creations of the human mind, which has survived for more than 200 years because it rests on very solid foundations and on sound fundamental principles. If any criticism has been leveled against insurance, it is certainly not because insurance has lost its usefulness in our societies rather it is probably because the practitioners (who are the sellers) have deviated from its fundamental principles or that the public are ignorant of its numerous indispensable roles in our society.

When thinking about economic and rural development in our society, it is extremely sad that insurance has never been in contemplation as a possible tool. Why? Perhaps, it may be because insurance had been and always being the profession of the elites in the urban areas. No one has thought it wise to see insurance as one of the inevitable tool for the emancipation of the majority of people in our rural areas – the purview of micro-insurance which I am glad we are gathered here to discuss today.

However, while Insurance’s core functions remain vitally important to all sectors of the economy i.e. the protection of the huge human and material resources of every nation. What is often not appreciated by people in our part of the world, including the insurance practitioners themselves is the way Insurance has gone well beyond the protection of assets, to become an inevitable vehicle for enhancing assets, spurring economic growth and developments and above all catalysing the eradication of poverty in rural societies. Micro insurance in West Africa All over the world, insurance has been found to be a major player in the socio-economic development of societies and more recently in the effort toward poverty eradication in our societies.

Insurance in West Africa cannot therefore be an exemption. Given its rightful place in this poverty alleviation crusade, Insurance can help tremendously in uprooting completely the causes and effects of poverty in society. To provide protection against risks, the poor have in the past developed informal and non-insurance mechanisms such as diversifying income sources; building assets by saving money, stocking food and investing in housing and healthcare; Strengthening social networks; participating in reciprocal borrowing and lending systems, welfare associations and other informal group-based insurance systems; enrolling in formal insurance or pension schemes or other formal social security systems; managing money well by controlling consumption and maintaining access to multiple sources of credit; selling assets, exchanging gifts, cash transfer, diversifying crops In West Africa, people had tried “OSUSU” as a means of providing for unforeseen contingencies.

Unfortunately, these have proven inadequate and have instead retarded economic growth and social mobility. Many elderly people live in poverty due to limited access to pension plans and saving facilities. These are the specialties of micro-insurance products today. Since loan facilities are increasingly impossible to access by the poor, the micro-insurance principles take cognisance of the situation of the poor and hence created products and services that are at the reach of the poor.

Meaning of micro insurance Micro Insurance is a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved Micro Insurance is synonymous to community-based financing arrangements including community health funds, mutual health organisations, rural health insurance, revolving drugs funds and community involvement in user-free management.

The challenges of micro insurance in West Africa are many. It is vital to know that our local conditions are unfavourable, premium income is low, administrative costs are relatively high and infrastructure for insurance support is lacking. These explain why the commercial insurers in West Africa have not taken more interest in this market. Reaching the poor people, many of whom are illiterates and make a living in the informal economy is difficult. And benefit of insurance is often misinterpreted since most of them do not understand why the premiums are not refunded if no claim is made.

Financial needs of the poor In developing economies and particularly in the rural areas, many activities that would be classified in the developed world as financial are not monetised: that is, money is not used to carry them out. Almost by definition, poor people have very little money. But circumstances often arise in their lives in which they need money or the things money can buy. Poor people find creative and often collaborative ways to meet these needs, primarily through creating and exchanging different forms of non-cash value. Mike Ikupolati, Chartered Insurance practitioner is the director general/head of mission West African Insurance Institute, Banjul, the Gambia.

Perceptions of (Micro)Insurance in Southern Ghana: The Role of Information and Peer Effects

From PoliEcon

This article investigates the understandings and perceptions of (micro)insurance among low-income people in southern Ghana, using evidence from four focus group discussions. It analyzes how the focus group participants think about various types of insurance – among them a micro life insurance product – and how their negative and/or positive evaluations have come about. The evidence indicates that (micro)insurance is mostly positively perceived by the participants of the focus group discussions. However, it is also found that many people’s image of insurance is based on incomplete (and sometimes erroneous) information, or even on intuition. In addition, the experiences or opinions of peers turn out to be critical in shaping an individual’s perception of insurance. These two factors potentially have a contagious effect, which can lead to unreasonably positive or overly negative ideas about (micro)insurance. Such ideas, in turn, can become detrimental to the further distribution of microinsurance.

Read Full: Perceptions of (Micro)Insurance in Southern Ghana: The Role of Information and Peer Effects

A.M. Best Special Report: The Potential of Microinsurance

From Business Wire

Throughout the world’s emerging markets, insurers increasingly are inclined to include microinsurance in their long-term strategies. This A.M. Best Co. special report provides an overview of this type of business, describes the typical participants and discusses its potential.

Microinsurance serves to improve coverage of basic human necessities in terms of business lines such as health, life, funeral, property and agriculture. Such micro policies transfer risk from low-income individuals—who do not have access to traditional insurance—to a group. Typical characteristics of microinsurance are:

• Low-cost transactions
• Simple risk coverage
• Low net worth clients
• Community involvement.

The characteristics of low-cost transactions, simple risk coverage, and low net worth clients are similar to those once found in home-service or industrial life policies around the turn of the 20th Century in the United Kingdom and United States. These policies were more prevalent after the industrial revolutions and evolved into more traditional lines that contributed to a virtuous cycle of protection, savings and increased wealth. Present-day emerging market economies that are cultivating microinsurance would like to see a similar evolution.

To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/bestweekreports.asp?rt=ir.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Andrea Keenan
Assistant Vice President
(908) 439-2200, ext. 5084
andrea.keenan@ambest.com
or
Rachelle Morrow
Senior Manager, Public Relations
(908) 439-2200, ext. 5378
rachelle.morrow@ambest.com
or
Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644
james.peavy@ambest.com

The Paris Appeal: A Call for Microfinance Reform

From Just Means

“You need different regulation for microfinance; sometimes that’s hard to get.” — Lars Thunell, Executive Vice President and CEO, International Finance Corporation[1]

What do actress Natalie Portman, former Senegalese president Abdou Diouf and deputy mayor of Paris Anne Hidalgo have in common? They are all signatories of the Paris Appeal for Responsible Microfinance, an international petition to clean up the microfinance sector.

Sometimes a good idea turns sour — especially when unethical forces enter into the picture and particularly when that good idea is unregulated. To a large extent, that is what has happened to microfinance. The industry, hailed at the outset some 30 years ago as a brilliant idea for solving global poverty, has been increasingly beset by unscrupulous and usurious lenders, some of whom charge their impoverished clients interest rates up to 100 percent. Some debtors, driven to desperation, have committed suicide.

STABILIZING MICROFINANCE AMID MISSION DRIFT

Now with the Paris Appeal, the sector is making a concerted effort to regain control of the global microcredit industry and stamp out illegal and unethical practices. This week, the secretariat of the Microcredit Summit Campaign, a project of the RESULTS Education Fund, a poverty alleviation non-profit based in Washington, DC, sent out an email asking for more signatories to the appeal, which was written by Convergences 2015, a non-profit discussion forum launched in 2008 that, according to its website, is the “first permanent platform in Europe dedicated to international cooperation, microfinance, social business…sustainable development…social entrepreneurship and to a social and solidarity-based economy aimed at reducing poverty and promoting the MDGs.”[2]

“To answer the excessive commercialization of microfinance and other drifts brought about by such commercialization, the Paris Appeal brings back fundamental values to the sector and offers a series of actions aimed at improving practices and impact,” according to European-Microfinance.org.[3]

DOUBLE-OBJECTIVE: FINANCIAL VIABILITY AND SOCIAL IMPACT

According to the Paris Appeal, the signatories believe that microfinance institutions (MFIs) “must pursue a long-term double objective of financial viability and social impact…by leading a policy of moderate interest rates, and by complying to the highest standards of information and client protection.” The appeal also calls for governance, efficient reporting and control systems, a system of supervision, a prevention of mission drifts and a code of conduct to which microfinance investors must subscribe.[4]

“To breathe life into this fundamental basis of rules and regulations,” the appeal states, “in the respect of the diversity of microfinance, the signatories are launching an appeal for Responsible Microfinance General Assemblies, to be organized in each greater region of the world and for each large category of stakeholders, under the aegis of an Organization Committee mandated by the G-20.”[5]

A GROWING INDUSTRY NEEDS REFORM

Overall, microfinance has played a positive role in the campaign to eradicate poverty. According to the State of the Microcredit Summit Campaign Report 2012, over 137 million of the world’s poorest received a microloan last year.[6] While that is an impressive number — especially considering that a decade ago, that number was 19 million — it is dwarfed by the over 3 billion people living on less than a dollar a day, almost half the world’s population.

But while the sector needs to grow — particulalry in the areas of insurance, savings and money transfer — it is also clear that reform is needed before it gets too big to control. The Paris Appeal is necessary step in the right direction.


NOTES

[1] http://www.euromoney.com/Article/2942414/World-BankIFC-Thunells-vision-for-microfinance.html
[2] http://www.convergences2015.org/en/About
[3] http://www.european-microfinance.org/news_en.php?piId=9618
[4] http://www.appeldeparis.com/
[5] Ibid.
[6] http://www.microcreditsummit.org/pubs/reports/socr/2012/WEB_SOCR-2012_English.pdf

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