Brokers and Agents in Microinsurance: Opportunities and Challenges

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Brokers and Agents in Microinsurance: Opportunities and Challenges. World Federation of Insurance Intermediaries Washington, DC 10 March 2009 Michael J. McCord President, MicroInsurance Centre mjmccord@microinsurancecentre.org www.microinsurancecentre.org. - PowerPoint PPT Presentation

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  • Brokers and Agents in Microinsurance: Opportunities and ChallengesWorld 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 worlds 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.Microinsurance Availability

  • MicroinsuranceRisk-pooling products that are designed to be appropriate for the low-income market in relation to cost, terms, coverage, and delivery mechanisms WHATISMICROINSURANCE?

  • Conventional and Micro Insurance

    Conventional InsuranceMicroinsuranceDeliveryChannelsSold by licensed agents or brokers to wealth, middle class, or companies that typically understand insuranceOften sold by unlicensed non-traditional agents to low-income persons, preferably in groups requiring significant consumer educationControlefficienciesScreening requirements may include a medical examination, or other tests Death certificates confirming eventIf there are any screening requirements, they are very limited to limit costsConfirmation by local leadersPremiumsTypically regular annual, quarterly, monthly. Based on age or other specific risk characteristics, and collect regularlyFrequent or irregular premium payments. Group pricing with links to other services. Different risk structures.PoliciesComplex policy document, many exclusions, usually annual termsSimple language, few to no exclusions, terms appropriate to marketClaimsClaims process for large sums insured may be quite difficultClaims process for small sums insured is simple ye still controls fraud

  • Microinsurance typesLife InsurancePropertyComprehensiveQUALITY?????

  • Factors in Microinsurance Purchases*

  • Relationships, in briefBrokers 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, ZambiaTata-AIG, IndiaAIG UgandaInsurer typeCommercialYears4 (2003)3 (total to 6/2005)7 (2004)DeliveryPartnersOwn agentsPartnersProductsCredit life, funeralTerm life and life savings linked to insGPA, Fire, Last expense (family)# insured31,71210,0731.6 millionClaims ratio22%191% (break even anticipated in 5 years)32%Expense ratioN/A41%Profit/SurplusN/A(91%)27%Total annual MI premiums(15%) USD 150,000(0.5%) USD 122,000 (over three years)(?%)USD 790,000

  • Tuw Skok, PolandMalawi Union of Savings and credit CoopsInsurer typeMutual owned by Credit Unions (Poland)Mutual (Malawi)Years operational7 years (2003)>4 (2003)ProductsCredit life, homeowners, AD&D# Clients924,20056,000Claims ratio56%40%Expense ratio32%15%Profit/Surplus12%45%ROE15%6.5%

  • SourcesMichael 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 2005Lemmy Manje. Madison Insurance Zambia- CGAP Working Group on Microinsurance, Good and Bad Practices Case Study No. 10. May 2005Sven Enarsson and Kjell Wiren. MUSCCO: Malawi Union of Savings and Credit Cooperatives: Good and Bad Practices Case Study No. 8 . March 2005Craig Churchill and Terry Pepler. Tuw Skok, Poland: Good and Bad Practices Case Study No. 2. May 2004

  • Microinsurance Brokers examples1Micro Insurance Agency (MicroEnsure)Traditional brokerage activity focused on low incomePrimarily work through MFIsUganda, Tanzania, Ghana, India, and the PhilippinesBreak even in
  • Brokers in microinsurance - examplesSANTAM (South Africa) broker with runnersRecent variation on broker modelSell new low income household structure and content insuranceBrokers employ runners who sell the product but not registered to provide adviceAdvice 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 accessMexicoInsurers generally use brokers for all businessSABTAM source: Jeremy Leach, Hollard Insurance

  • Reinsurance BrokersGuy Carpenter Reinsurance intermediary for microinsuranceILO Microinsurance Innovation Facility

  • Agents in microinsuranceTraditional agentsGemini Life Insurance (Ghana)AIG Uganda (as intermediary)Micro-agentsDelta Life (Bangladesh)Tata-AIG (India)Unlicensed agentsSurAmericana (Colombia)Allianz (Indonesia)

  • Regulations - examplesIndia (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 contractsBolivia (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 MicroinsuranceAssess potential role and profitabilityIs this really a priority for brokersDevelop (buy) low-income market expertiseSomeone from MFIs or other type distributorIdentify demandRisk managements gapsIdentify potential market conduitsMFIs ( easier to start)Others retailers, utilities, cell phone operators, churches

  • OpportunitiesMicroinsurance Innovation FacilityInnovation grantsTechnical assistanceResearchMicro Insurance NetworkLeaders forumSub groupsNewsletter5TH International Microinsurance ConferenceDakar, Senegal 3-5 November 2009

  • *The MicroInsurance Centre Developing partnerships to insure the worlds poorwww.MicroInsuranceCentre.orgmjmccord@MicroInsuranceCentre.org

  • InsuranceCovers 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 DeliveryCommunity-Based Model (ILO STEP)Owned and Managed by MembersMutual Model (TYM and their planned MBA)Owned by members, professional managementPartnership Model (ABIC and VBARD)Very limited risk to MFI, administrative burden limitedAlso: full service insurer, provider, social security models, new microinsurance brokerage modelKEY ISSUE = PLACING RISK WHERE IT IS BEST MANAGED

  • Knowledge GapInsurersFinancial institutions (especially MFIs)Other delivery channels

    The graphs and boxes exclude the All China Federation of Trade Unions. Their reported 28.3 million covered lives is one-third of the total microinsurance covered lives identified in this project and thus significantly distorts the numbers when disaggregating and analyzing the details of the programs. The ACFTU offers a multi-cover product to trade union members that covers an aspect of life, health, AD&D, and property all in the same product. They report this cover is purchased by 28.3 million members. This is an anomalous program and is likely not replicable. In addition the product quality should be further assessed. The reported 28.3 members are included in the total covered lives amount of 78 million.*Their attitudes and perceptions of insurance, Their understanding of insurance concepts The relationship between the potential clients perception of need and the product The mechanism of premium payment The total cost of the coverage The available household income

    ***There are several types of models that are possible:Community Based ModelIn Tanzania, where there are strong community organizations, a community-based model was pilot tested in 1996. The community model is usually stronger when there are existing social organizations. Provider Model The provider model is one in which the provider insures the client. The client must then go to that provider for care.Insurer ModelMFIPartnership ModelMicrocare