Brokers and Agents in Microinsurance: Opportunities and Challenges
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Brokers and Agents in Microinsurance: Opportunities and Challenges
World Federation of Insurance IntermediariesWashington, DC10 March 2009
Michael J. McCordPresident, MicroInsurance Centremjmccord@microinsurancecentre.orgwww.microinsurancecentre.org
A comprehensive landscape study of low-income people in the world’s 100 poorest countries found that only 3% (78m) of the low-income population are covered by formal microinsurance.
(data from mid-2006). Estimate 125 million today. Potential market might be 3 Billion.
GuatemalaEl Salvador
China
Brazil
India
Iran
Sudan
Algeria
Argentina
Kazakhstan
Libya
Mali
Peru
Mongolia
ChadNiger
Egypt
AngolaBolivia
Saudi Arabia
Chile
Turkey
Ethiopia
Iraq
Nigeria
Colombia
Pakistan
Ukraine
South Africa
Namibia
Mauritania
DRC
Kenya
Venezuela
Afghanistan
Mozambique
YemenThailand
Morocco
Indonesia
Uzbekistan
Madagascar
Laos
Japan
Paraguay
Cameroon
Vietnam
Myanmar
Ghana
Tanzania
Ecuador
Tunis ia
Senegal
Malaysia
Papua New Guinea
North Korea
Nicaragua Philippines
South Korea
Panama Sri Lanka
Haiti Taiwan
Israel
Mauritius
Uganda
Belarus
Guyana
100 Poorest Countries
% Poor InsuredNo Data.001% - 0.4%0.4% - 1.6%1.6% - 4.2%4.2% - 7.7%38%
Mic
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“Microinsurance”
• Risk-pooling products that are designed to be appropriate for the low-income market in relation to cost, terms, coverage, and delivery mechanisms
WHAT
IS
MICROINSURANCE?
Conventional and Micro InsuranceConventional Insurance Microinsurance
DeliveryChannels
Sold by licensed agents or brokers to wealth, middle class, or companies that typically understand insurance
Often sold by unlicensed non-traditional agents to low-income persons, preferably in groups requiring significant consumer education
Controlefficiencies
Screening requirements may include a medical examination, or other tests
Death certificates confirming event
If there are any screening requirements, they are very limited to limit costs
Confirmation by local leaders
Premiums
Typically regular annual, quarterly, monthly. Based on age or other specific risk characteristics, and collect regularly
Frequent or irregular premium payments. Group pricing with links to other services. Different risk structures.
PoliciesComplex policy document, many
exclusions, usually annual terms
Simple language, few to no exclusions, terms appropriate to market
ClaimsClaims process for large sums
insured may be quite difficultClaims process for small sums
insured is simple ye still controls fraud
Microinsurance typesLife Insurance
Credit LifeFuneral
Endowments
“Transit
ion funds”
Pensions
Education Life
Disability
Dismemberment
Partial
Permanent
Temporary
TotalCredit Disability
Hospitalisation
Out-patient
Health
Dental
Opt
ical
Surgical
Dread Disease
Property
Fire TheftRainfall Floods
Livestock
Agriculture Prices
Comprehensive
QUALITY?????
Factors in Microinsurance Purchases
6
Perceptions of Insurance
Understanding InsuranceConcepts
Product / Demand Match
Easy Payment Mechanism
Cost of Coverage
Available Income
Cost and Frequency
PurchaseDecisionMaking
RequiresEducation Knowledge Appreciation
RequiresAppropriate product design
Relationships, in brief
Insurers
Delivery channels
Misunderstanding ?
?
Sometimes good products, but often-Products poorly designed for the market-Inappropriate procedures-Weak servicing-Inefficient systems-Poorly trained staff and clients-Ineffective marketing
Brokers might improve this situation
MI Covered Lives by Delivery Channel Delivery Channel Type Covered Lives Agents: Microinsurance or Other 7,569,773 Brokers: Microinsurance or Other 292,947 CBOs and other Groups 25,645,596 Employer Groups 181,192 Government and Parastatal 11,815,690 Mutuals 13,800,214 Other Financial Services (e.g. MFIs) 17,001,644
Retailers of Other Service Providers including Funeral Parlors 1,755,682 Not Specified 436,766 Total 78,499,503
Distribution by Product line ChannelClassName
Accident & Disability
Health Life Property & Index
Total
Agents: MI or Other 1,096,418 108,903 4,437,514 2,099,182 7,742,017
Brokers: MI or Other 18,827 273,904 292,730
CBOs and other Groups 15,193,689 10,913,858 21,031,064 11,431,763 58,570,375
Employer Groups 2,150 178,283 1,192 150 181,775
Government and Parastatal
9,738,403 9,563,667 9,613,564 11,216,056 40,131,690
Mutuals 9,539,907 11,090,399 12,357,172 9,438,867 42,426,345
Other Financial Services (e.g. MFIs)
5,228,180 3,116,289 14,343,673 1,682,222 24,370,364
Retailers 89,760 152,924 1,303,397 289,795 1,835,876
Not specified 53,543 378,050 431,593
Total 40,888,508 35,196,692 63,739,530 36,158,034 175,982,764
Madison, Zambia
Tata-AIG, India AIG Uganda
Insurer type Commercial
Years 4 (2003) 3 (total to 6/2005) 7 (2004)
Delivery Partners Own agents Partners
Products Credit life, funeral
Term life and life savings linked to ins
GPA, Fire, Last expense (family)
# insured 31,712 10,073 1.6 million
Claims ratio 22%191% (break even
anticipated in 5 years)
32%
Expense ratio N/A 41%
Profit/Surplus N/A (91%) 27%
Total annual MI premiums
(15%) USD 150,000
(≈0.5%) USD 122,000 (over three years)
(?%)USD 790,000
Tuw Skok, Poland Malawi Union of Savings and credit Coops
Insurer type Mutual owned by Credit Unions (Poland)
Mutual (Malawi)
Years operational 7 years (2003) >4 (2003)
Products Credit life, homeowners, AD&D
# Clients 924,200 56,000
Claims ratio 56% 40%
Expense ratio 32% 15%
Profit/Surplus 12% 45%
ROE 15% 6.5%
Sources• Michael J. McCord. AIG Uganda - CGAP
Working Group on Microinsurance, Good and Bad Practices Case Study No. 9. April 2005.
• James Roth and Vijay Athreye. Tata – AIG Life Insurance Company Ltd. - CGAP Working Group on Microinsurance, Good and Bad Practices Case Study No. 14. September 2005
• Lemmy Manje. Madison Insurance Zambia- CGAP Working Group on Microinsurance, Good and Bad Practices Case Study No. 10. May 2005
• Sven Enarsson and Kjell Wiren. MUSCCO: Malawi Union of Savings and Credit Cooperatives: Good and Bad Practices Case Study No. 8 . March 2005
• Craig Churchill and Terry Pepler. Tuw Skok, Poland: Good and Bad Practices Case Study No. 2. May 2004
Microinsurance Brokers – examples1
• Micro Insurance Agency (MicroEnsure)– Traditional brokerage activity focused on low income– Primarily work through MFIs– Uganda, Tanzania, Ghana, India, and the Philippines– “Break even in <1 year” – http://www.microinsuranceagency.com/index.html
• Planet Guarantee– Numerous francophone countries– Technical assistance provision and brokerage– http://www.planetfinancegroup.org/EN/pop_planet_garantee.
php
Brokers in microinsurance - examples• SANTAM (South Africa) broker with runners
– Recent variation on broker model– Sell new low income household structure and
content insurance– Brokers employ “runners” who sell the product
but not registered to provide advice– Advice provided by broker or supervisor.
Supervisor for every 5 runners.– Premiums collected by debit order. No option to
pay premium in cash.– Free “Call me” for SMS used for call centre access
• Mexico– Insurers generally use brokers for all business
SABTAM source: Jeremy Leach, Hollard Insurance
Reinsurance Brokers• Guy Carpenter –
– Reinsurance intermediary for microinsurance– ILO Microinsurance Innovation Facility
Agents in microinsurance
• Traditional agents– Gemini Life Insurance (Ghana)– AIG Uganda (as intermediary)
• Micro-agents– Delta Life (Bangladesh)– Tata-AIG (India)
• Unlicensed agents– SurAmericana (Colombia)– Allianz (Indonesia)
Regulations - examples• India (2005)
– In addition to an insurance agent or corporate agent or broker licensed under the Act, … as the case may be, micro-insurance products may be distributed to the micro-insurance agents
• Peru (2007)– “The commercialization of microinsurance can be
undertaken by direct sale to the insured, through the intermediation of insurance brokers or through the signing of commercialization contracts
• Bolivia (2009?)– “Bans” brokers in microinsurance (draft regulations)
Issues in Regulation and Supervision of Microinsurance (IAIS)
• Alternative delivery channels: Traditional brokers/ agents typically do not want to sell microinsurance with its relatively small premiums (and thus small commissions). Thus, many microinsurance delivery channels are unlicensed and unregulated agents. Often the regulator allows the insurer to take on the risk of agents so may not need to be directly regulated.
• Intermediaries such as agents and brokers are also important actors at the micro level. These entities need to be strong, capable and responsive to the particular needs of low-income households and their service providers in order to contribute effectively to building an inclusive financial system.
Strategies for Brokers in Microinsurance• Assess potential role and profitability
– Is this really a priority for brokers
• Develop (buy) low-income market expertise– Someone from MFIs or other type distributor
• Identify demand– Risk managements gaps
• Identify potential market conduits– MFIs ( easier to start)– Others – retailers, utilities, cell phone operators,
churches
Opportunities• Microinsurance Innovation Facility
– Innovation grants– Technical assistance– Research
• Micro Insurance Network– Leaders forum– Sub groups– Newsletter
• 5TH International Microinsurance Conference– Dakar, Senegal – 3-5 November 2009
21
The MicroInsurance Centre“Developing partnerships to insure the world’s poor”
www.MicroInsuranceCentre.org
mjmccord@MicroInsuranceCentre.org
“Insurance”
“Covers an individual / company / household for some or all of a financial loss that is linked to an unpredictable event or risk, via risk pooling and the payment of a premium”
Models of Microinsurance Delivery• Community-Based Model (ILO STEP)
– Owned and Managed by Members• Mutual Model (TYM and their planned MBA)
– Owned by members, professional management• Partnership Model (ABIC and VBARD)
– Very limited risk to MFI, administrative burden limited
• Also: full service insurer, provider, social security models, new microinsurance brokerage model
KEY ISSUE = PLACING
RISK WHERE IT IS BEST
MANAGED
Knowledge Gap
Insurers
Financial institutions (especially MFIs)
Other delivery channels
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