Special Focus Archive 2006

Microinsurance is an important risk management tool for low-income households and contributes substantially to poverty reduction all over the world. More than 150 experts from 30 countries representing 80 international organisations, non-government organisations, development-aid organisations and the insurance industry attended the 2nd annual Microinsurance Conference 2006, “Making Insurance Work for Africa”, organised by Munich Re Foundation and the CGAP Working Group on Microinsurance. It was held this year in Cape Town with the support of South Africa-based FinMark Trust, from 21 to 23 November 2006.

Participants from 12 African countries shared their views with experts from Europe, North America, India, Pakistan, the Philippines and elsewhere, and discussed the challenges of extending insurance to low-income households. Half of the participants of the conference were from insurance and re-insurance companies—including Old Mutual, Santam, Hollard, AIG, Munich Re and Zurich Financial Services—indicating a burgeoning interest by formal players in reaching under-served markets.

Dirk Reinhard, Vice Chairman of the Munich Re Foundation, said, “The awarding of the Nobel Peace Prize to Mohammed Yunus and the Grameen Bank has helped raise awareness around the world about the critical role of microfinance.” Insurance is an important complement to credit, savings and other financial services to reduce the impact of risks on low-income households. “While microcredit started by providing small loans to self-employed women to expand their businesses, today we recognize that financial services play both productive and protective roles. Properly designed insurance products are extremely important for many low-income households,” Reinhard added.

Making Insurance Work for Africa
The topic of this year’s conference was “Making Insurance Work for Africa,” where governments are least able to provide effective social protection. According to the ILO, only 20 percent of the world’s population has access to adequate social protection, such as health care and pensions, while more than half have no cover whatsoever. “Because in many countries, especially in Africa, social protection is inadequate,” Craig Churchill of the International Labour Organization in Geneva explained, “microinsurance can fill this gap.” Given the limited resources in these countries, “a complimentary approach is needed to use government incentives to leverage the involvement of the private sector.”

Dominic Liber, an actuary from Quindiem in South Africa, presenting the findings from a forthcoming report by the MicroInsurance Centre, said that nearly 80 million low-income people have insurance protection around the world—while that may sound like a lot, in fact less than three percent of low-income households have formal insurance worldwide.

Africa is the continent with the world’s lowest insurance premium to GDP. The FinScope survey shows that only 19 percent of South Africans have some form of formal life insurance, according to Jeremy Leach of FinMark Trust. Usage of short-term policies is even lower with only nine percent—but compared to the rest of the continent, these are impressive results. For example, FinScope Zambia showed less than seven percent of the population had any insurance products. To expand coverage, insurance companies will have to find ways of serving non-traditional markets, such as workers in the informal economy, where the majority of Africans work.

There is demand for coverage by low-income persons and there is a market if the products are properly designed and the distribution channels are effective. In South Africa, for example, there are almost 100,000 community-based burial societies contributing approximately $1bn in “premiums”. These societies allow low-income households to cover the often considerable burial expenses of family members by pooling their resources. The fact that so many people resort to these informal means of managing their risks suggests that the formal insurance industry is not sufficiently addressing their need to manage unexpected expenses.

Innovative Solutions
Innovative schemes—like Microcare’s health insurance in Uganda and the community-based mutuelles santé in West Africa—demonstrate that it is possible to overcome the major challenges of serving this market, which include high distribution costs and the market’s lack of understanding about insurance.

In South Africa, big retailers such as Shoprite, Edcon group, PEP stores and Ellerines are providing microinsurance by collaborating with insurance companies, which is potentially promising. Dirk Reinhard closed the conference saying, “There is a new and strong momentum and a massive opportunity. Microinsurance is not micro - it is a key to secure social protection and to combat poverty.”

Click here to download the conference documents.

The next annual conference will be held in November 2007 in Mumbai, India.

New Milestone Publication
The conference launched a new book, published by ILO, Protecting the Poor: A Microinsurance Compendium. This comprehensive book demonstrates that a clear picture of microinsurance is beginning to emerge – with its challenges as well as with new solutions. As a key source of good and bad practices, this hard cover, 600-page book, based on a review of 40 microinsurance schemes around the world, is a critical and must-have resource for anyone interested in extending insurance to the low-income market.

Order Book from ILO Publications or read online version at www.microinsurancecompendium.org

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The RSP subgroup currently manages two main projects:

The ISSUES PAPER ON REGULATION AND SUPERVISION OF MICROINSURANCE which is elaborated by the Joint Working Group (JWG) of the CGAP-RSP subgroup and the International Association of Insurance Supervisors (IAIS, Basel). This paper is directed at insurance supervisors and shall provide a common understanding of microinsurance by describing products, markets, legal frameworks, stakeholders and challenges to microinsurance delivery. Furthermore, the paper is using the IAIS Insurance Core Principles (ICPs) to identify areas where regulatory and supervisory issues arise in microinsurance, in particular, focusing on prudential, governance and market conduct issues.

A large number of IAIS and RSP members and other experts have contributed to the Issues Paper. In a first round, their submissions were discussed during the meeting of the drafting group of the IAIS-CGAP Joint Working Group on Microinsurance hosted by the Insurance Regulatory and Development Authority at Hyderabad, India from 30 August - 1 September 2006. IAIS Members and Observers of the Joint Working Group from Albania, Brazil, Malaysia, Morocco, Nepal, Germany, South Africa, United States and World Bank and ICMIF besides the hosts India and RSP subgroup members participated.

Prior to the drafting group meeting field-visits were organised on 28 and 29 August to rural areas to acquaint the supervisors about the practices of microinsurance in India and how regulatory and supervisory concerns are adequately addressed. Members highly appreciated this initiative and expressed that similar visits should continue so that they can benefit from shared experiences.

The first draft of the Issues Paper was discussed at the meeting of the Joint Working Group in Beijing on 20 October, 2006, during the Annual Meeting of the IAIS. Rounds of consultations will follow, until the final version will be adopted by the IAIS Implementation Committee which is expected at the IAIS Dubai meeting of February 2007. Based on the Issues Paper, and on the discussions with the IAIS Implementation Committee further areas of cooperation between the IAIS and the RSP subgroup will be explored.

The second project, which also receives support from the IAIS, is the implementation of COUNTRY STUDIES ON MICROINSURANCE REGULATION AND SUPERVISION. Five country studies are planned under a project being coordinated by FinMark Trust (South Africa) and financed by IDRC (International Development Research Centre, Canada), GTZ (German Technical Cooperation) on behalf of BMZ (German Federal Ministry for Economic Cooperation and Development) and Finmark Trust and supported by ILO (International Labour Organisation).

Additional ‘in-kind’ support will be made available from members of the Joint Working Group. The countries selected are South Africa, India, Philippines, Uganda and Colombia which should provide a deep enough pool of practical experience in the provision of micro-insurance to facilitate the development of Guiding Principles for the Regulation, Supervision and Policy Issues of Microinsurance expected for 2008.

The objective of the country study project is to develop a better understanding of the policies and the legal, regulatory and supervisory (R&S) frameworks that effectively facilitate the provision of life- insurance services to the poor (micro-insurance), which will allow for key R&S principles on micro-insurance to be developed. The intention is that these principles must be practical and appropriate to the context facing developing countries and allow for effective delivery of micro-insurance regardless of organisational type (whether extended via a commercial insurer, an NGO, a mutual, retailer, bank or some form of partner-agent model). To launch the project, a methodology workshop was held in Beijing on 23-24 October 2006. Participants are the CGAP WG/RSP subgroup members and the implementing agencies which were selected at country level. Some of the supervisors from the countries selected for the study will also participate. The aim of the workshop is to review and approve the research methodology for the country studies.

Finally, also in cooperation with the IAIS, the subgroup is working on an ACTION PLAN for future work and a Funding Proposal to motivate other supporting agencies to join the groups’ work and tap new sources of finance. The subgroup is aware that more research, dialogue, awareness creation and capacity building for supervisors’ measures are in great demand for effective and efficient regulation and supervision of microinsurance. The funding proposal includes sensitisation and awareness creation measures (publications and policy dialogue seminars, dissemination costs), capacity building measures (exposure visit such as in India, seminars and training), research activities (e.g. on the supervision of microinsurance, or health microinsurance).

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