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Microinsurance in Aceh

Feasibility Study

December 2006

By

Gabriele Ramm

Gerald Leppert

Kai Straehler-Pohl

Commissioned by Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ) GTZ Regional Unit: 402 Regional Group

Responsible: Dr. Michael Hamp / Svenja Paulino Rodriguez

Country Director: Ms Sabine Markert

Appraisal Team: Ms Gabriele Ramm (mission leader)

Mr Gerald Leppert

Mr Kai Straehler-Pohl

Date of Report: 01 December 2006

Table of Contents

ACKNOWLEDGEMENTS.........................................................................................................................................I LIST OF ABBREVIATIONS.................................................................................................................................... II EXECUTIVE SUMMARY....................................................................................................................................... IV 1 BACKGROUND .................................................................................................................................................. 1 2 METHODOLOGY............................................................................................................................................... 1 3 DEMAND FOR MICROINSURANCE............................................................................................................. 2

3.1 IDENTIFICATION OF RISKS........................................................................................................................... 2 3.2 CONCLUSIONS............................................................................................................................................. 3

4 EXISTING RISK MANAGEMENT STRATEGIES....................................................................................... 3 4.1 MICROSAVINGS AND MICROCREDIT PRODUCTS.......................................................................................... 3 4.2 TRADITIONAL RISK MANAGEMENT STRATEGIES......................................................................................... 3 4.3 INSURANCE COMPANIES.............................................................................................................................. 4 4.4 SOCIAL SECURITY PROGRAMS .................................................................................................................... 5 4.5 CONCLUSIONS............................................................................................................................................. 6

5 SCOPE FOR MICROINSURANCE ................................................................................................................. 6 5.1 THE ROLE OF MICROINSURANCE AS RISK MANAGEMENT STRATEGY.......................................................... 6 5.2 PRODUCTS AND WILLINGNESS TO PAY........................................................................................................ 8 5.3 DELIVERY CHANNELS ................................................................................................................................. 9

6 POTENTIAL PARTNER ORGANISATIONS .............................................................................................. 10 6.1 FINANCIAL INTERMEDIARIES .................................................................................................................... 10 6.1.1 Commercial Banks ................................................................................................................................... 10 6.1.2 Microfinance institutions ......................................................................................................................... 10 6.2 NON-FINANCIAL ORGANISATIONS ............................................................................................................ 12 6.2.1 Non-financial NGOs ................................................................................................................................ 12 6.2.2 Non-financial Cooperatives..................................................................................................................... 13 6.3 OTHER STAKEHOLDERS ............................................................................................................................ 14 6.3.1 Secondary structures................................................................................................................................ 14 6.3.2 Government institutions........................................................................................................................... 14

7 THE NEED FOR CAPACITY DEVELOPMENT ........................................................................................ 15 8 INTERNATIONAL ORGANISATIONS........................................................................................................ 17

8.1 OTHER GTZ SUPPORTED PROJECTS IN NAD ............................................................................................ 17 8.2 ILO ........................................................................................................................................................... 18 8.3 ADB ......................................................................................................................................................... 18 8.4 MERCY CORPS .......................................................................................................................................... 18 8.5 CARE INTERNATIONAL ............................................................................................................................. 18 8.6 SAVE THE CHILDREN ................................................................................................................................ 19

9 CONCLUSIONS AND RECOMMENDATIONS.......................................................................................... 19 9.1 PRODUCTS................................................................................................................................................. 20 9.2 DELIVERY CHANNELS AND PARTNER ORGANISATIONS ............................................................................ 20 9.3 CAPACITY BUILDING AND TRAINING ORGANISATIONS ............................................................................. 23 9.4 COOPERATION WITH OTHER INTERNATIONAL ORGANISATIONS ............................................................... 23 9.4.1 Interfaces with PPP Jakarta and India ................................................................................................... 23 9.4.2 Other GTZ supported projects................................................................................................................. 24 9.4.3 International Organisations .................................................................................................................... 24

10 NEXT STEPS...................................................................................................................................................... 24 11 APPENDICES .................................................................................................................................................... 26

1 METHODOLOGY ................................................................................................................................................... 26 2 LIST OF PRE-SELECTED POTENTIAL PARTNER INSTITUTIONS ............................................................................... 28 3 COST OF HEALTH CARE SERVICES........................................................................................................................ 30

4 HOSPITALS IN NANGGROE ACEH DARUSSALAM ................................................................................................. 32 5 PROPOSED PILOT REGIONS FOR MICRO HEALTH INSURANCE ............................................................................... 33 6 ALTERNATIVE DELIVERY MODEL ........................................................................................................................ 34 7 OVERVIEW OVER MULTILEVEL ADMINISTRATION STRUCTURE IN NAD ............................................................. 35 8 CRITERIA FOR MICROINSURANCE ORGANISATIONS ............................................................................................. 36 9 TOR GABRIELE RAMM ........................................................................................................................................ 38 10 CONTACT DETAILS OF PEOPLE MET DURING THE MISSION................................................................................. 40 11 BIBLIOGRAPHY .................................................................................................................................................. 44

Microinsurance in Aceh Feasibility study

I

Acknowledgements The appraisal team takes this opportunity to thank all individuals and organisations for their constructive contributions to this report and the time they spend for providing all the relevant information and sharing their experience.

Especially, the authors would like to thank the staff and members of Baitul Qiradh Cut Nyak Dien, BQ Amanah Nanggroe Beurawe and BQ Surya Madinah in Banda Aceh for the kind support in conducting focus group discussions and for long hours of interviews. Furthermore, we would like to thank fishermen and Tambak farmers in the village of Kuala, Aceh Utara, for their time discussing risks and tradition risk coping mechanisms.

We would particularly like to thank Pak Ridwan for his support and his valuable background information. Without his inputs it would not have been possible to write this report.

The authors wish to sincerely thank Ibu Eva and all others from the GTZ supported Economic Recovery and Microfinance Program for their assistance in organising the stay. Special thank is expressed to Michael Hamp, ProFI, and Svenja Paulino Rodriguez, Economic Recovery and Microfinance Program (ERMF) of GTZ. Without their initiative the mission would not have been materialized.

The kind support given by Allianz Life Indonesia whose donations made this feasibility study possible is gratefully acknowledged.

The authors

Gabriele Ramm

Gerald Leppert

Kai Straehler-Pohl

Microinsurance in Aceh Feasibility study

II

List of abbreviations ADB Asian Development Bank ASKESKIN Asuransi Kesehatan subsidi untuk masyarakat miskin BA Banda Aceh BI Bank Indonesia (central bank of Indonesia) BKKBN Badan Koordinasi Keluarga Berencana Nasional (National

Family Planning Board) BKM Bantuan Khusus Murid BMZ Bundesministerium fr wirtschaftliche Zusammenarbeit

und Entwicklung BOS Bantuan Operasional Sekolah (school operational aid) BPD Bank Pembangunan Daerah (regional development bank) BPR Bank Perkreditan Rakyat (Peoples Credit Banks, some-

times referred to as rural banks) BPRS BPR following Sharia banking rules BQ Baitul Qiradh (saving and credit cooperative following Is-

lamic principles) BRI Bank Rakyat Indonesia BRR Badan Pelaksana Rehabilitasi dan Rekonstruksi, NAD (Re-

gional Rehabilitation and Reconstruction Agency) BYTRA Bina Rakyat Sejahtera, Institute for Strengthening Social

Capacity CB Commercial Bank CCDE Centre for community development and education CGAP Consultative Group to Assist the Poor CU Credit Unions DSP Danamon Simpan Pinjam EPOS EPOS Health Consultants GmbH ERMF Economic Recovery and Microfinance Program FGD Focus Group Discussion GAM Gerakan Aceh Merdeka (Aceh movement for independence) GFUSA Grameen Foundation USA GTZ Gesellschaft fr Technische Zusammenarbeit IDR Indonesian Rupiah (national currency) ILO International Labour Organisation INGO International Non-Government Organisation Jl Jalan (street) JPKMM Program Jaminan Pemeliharaan Kesehatan Masyarakat Mi-

skin (health service guarantee for the poor) KSP Koperasi Simpan Pinjam (single purpose cooperative) MC Mercy Corps MFI Microfinance Institution MICRA Microfinance Innovation Center for Resources and Alterna-

tives MI Microinsurance

Microinsurance in Aceh Feasibility study

III

MIS Management Information System NAD Nanggroe Aceh Darussalam (Aceh province) NGO Non Governmental Organisation PERBARINDO Persuatan Bank Perkreditan Rakyat Indonesia (association

of Indonesian BPRs) PNM Permodalan Nasional Madani PPP Public Private Partnership ProFI Promotion of Small Financial Institutions PRSP Poverty Reduction Strategy Paper RMS Risk management strategy RS Rumah sakit (hospital, here referred to private hospitals) RSIA Rumah sakit ibu dan anak (women and child hospital) RSU Rumah sakit umum (public hospital) SD Sekolah dasar (elementary school) SHG Self Help Group SMA Sekolah menengah atas (senior high school) SMK Sekolah menengah kebangsaan (senior secondary school) SMP Sekolah menengah pertama (junior high school) ToR Terms of Reference UPPKS Usaha Peningkatan Pendapatan Keluarga Sejahtera

(self help group of BKKBN) USP Multi Purpose Cooperative YAMIDHA Yayasan Mitra Dhuafa YDS Yayasan Dinamik Sistim YDUA Yayasan Daur Ulang Aceh YKBS Yayasan Karya Banda Sejahtera

All currency conversions from Indonesian Rupiahs (IDR) to Euro (EUR) are based on the ex-change rate of Oct 18 2006: 1000 IDR = 0.8697 EUR1

1 Exchange rate based on interbank rate, www.oanda.com/convert/classic

Microinsurance in Aceh Feasibility study

IV

Executive summary In reaction to the dramatic loss the Acehnese population suffered due to the Tsunami disaster, Allianz AG and GTZ decided to explore the opportunities to extend the current public-private partnership (PPP) microinsurance project operated in Java to Aceh province.

The study team identified the demand for microinsurance in Aceh province (NAD), analysed potential partner institutions and formulated recommendations regarding suitable products, delivery channels, capacity development needs and the cooperation with other organisations.

During the field research information was obtained from individual potential clients, representa-tives of microfinance institutions (MFIs) and local non-governmental organisations (NGOs), insurance providers, government agencies as well as international organisations in Banda Aceh, Aceh Besar, Lhokseumawe, Aceh Utara and Jakarta.

In Aceh province, similar to the UNDP-GTZ-Allianz study Microinsurance Demand and Market Prospects - Indonesia (2005), the risk of severe illness is perceived as the major burden fol-lowed by the concern about education expenses for the children. Business risks, such as bankruptcy or losses due to business relocation, ranked third. Surprisingly, loss of assets caused by na...

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