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%

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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