Dirty shoes

The market potential is massive. More than three billion people could use microinsurance to guard against major risks to life. That is the guestimate of MicroEnsure, a brokerage that was established with the help of the Bill and Melinda Gates Foundation and is currently active in Ghana, Uganda, Tanzania, India and the Philippines. The calculation goes as follows: Some 2 billion prosperous people – mostly but not exclusively in industrial countries – are already insured, and for the billion people living hand to mouth in absolute poverty, insurance is hardly an option.

Microinsurance is not a tool for lifting people out of poverty. But as Marc Nabeth of the French consulting company CGSI points out, it is relevant to development because it serves to protect people who are in danger of becoming destitute. Nabeth advises customers in Haiti, Lebanon, Vietnam and francophone Africa.

The database is thin. Experts are frustrated with the lack of reliable statistics. A recent, provisional study by the ILO’s Microinsurance Innovation Facility states that close to 15 million people in Africa are protected by some kind of microinsurance. Nearly 56 % of them live in South Africa, where many people belong to informal funeral societies. Members pay fees, and when a person dies, the society makes sure that there is a decent funeral.

Altogether, however, the ILO study shows that insurance in Africa reaches just 2.6 % of people living on less than $ 2 a day. On the other hand, the number of insured people outside South Africa is said to have grown by around 80 % from 2005 to 2008.

Insurers have always sold policies to disadvantaged people, of course. But to meet the challenge of reaching the lower middle classes and better-off poor of Asia, Africa and Latin America, Michael McCord reckons the industry needs a “paradigm shift”. McCord heads the MicroInsurance Center in the United States, which brokers contacts and acts as a specialist consultant for prospective insurers. It is impossible, he says, simply to extend present practice from rich countries to the poor world.

McCord points out that elaborate policies are worthless – because many potential customers cannot read. Sales teams should not wear suits and ties, but be prepared to dirty their shoes – for otherwise they will not win client confidence. Exclusion clauses, moreover, must be avoided – because the customers would not understand them and the verification of all documents in an emergency would be too difficult and too expensive. Therefore, McCord advises microinsurers not to demand to see birth, marriage and death certificates. It makes more sense, he says, to base controls on witness statements by respected local priests, mullahs or even local politicians.

Unlike microcredit, which is often issued by small independent microfinance institutions (MFIs), microinsurance products tend to be offered by major insurance companies. Those companies reach clients through organisations that are in touch with the target group. The interest in cooperation does not normally stem from the insurers themselves but rather from their partner organisations.

Cooperation with MFIs is quite common. Many MFIs conclude credit-life insurance policies for their clients. In the event of a borrower’s death, the credit-life insurer pays the outstanding sum, so the loan does not become a burden for the surviving dependents or the MFI itself.

Life-credit insurances, however, will not do to persuade customers of the benefits of insurance in general, says Dipankar Mahalanobis who heads MicroEnsures Africa operations. Many borrowers are unaware of being covered by an insurance, he says, because they consider their insurance premium a part of their interest payment. He warns, moreover, that the performance of MFIs as delivery channels for life or even health insurance is often unconvincing. According to Mahalanobis, only MFIs that acquire insurance expertise of their own and design stringent management procedures are likely to succeed in this innovative field.

It is also obvious that MFIs are inadequate channels for reaching out to the majority of the three billion clients targeted. As Anna Gincherman of Women’s World Banking, an MFI umbrella organisation, said during the 5th International Microinsurance Conference in early November in Dakar, MFIs supply loans to only around 140 million micro entrepreneurs worldwide. The conference was arranged by the Munich Re Foundation and the Microinsurance Network, which has been organising experience exchanges since 2002

To reach clients beyond the range of MFIs, MicroEnsure’s Africa director Mahalanobis increasingly relies on faith-based organisations at village or district level. Cooperatives and civil-society organisations can also prove good marketing partners for microinsurance. What is crucial, says Mahalanobis, is that they really have the good of their clients at heart and are not just out to sell policies.

To support microinsurance, Germany’s Ministry of Economic Cooperation and Development (BMZ) teamed up with the World Bank, the Consultative Group to Assist the Poor, the ILO and other partners in November to create the Access to Insurance initiative. The initiative’s office is hosted by GTZ. (dem)