The Challenges of Managing Microinsurance Schemes in Uganda

 • Objective• to analyze the challenges of managing micro-

insurance schemes in Uganda. • (i) Introduction • (ii) Experiences in the provision of

microinsurance. • (iii) Challenges in managing microinsurance

schemes.• Summary and conclusions

Experiences in the Provision of

Microinsurance for the Informal Economy

• Microinsurance in Uganda has gained importance over the last decade to cater for the informal sector workers, who constitute about 95% of the total workers: mainly driven by:

- the need for Microfinance Institutions (MFIs) to protect clients and often their families against household income shocks provoked by health related problems.

- the existence of significant opportunities for the supply of insurance to the low–income market.

Experiences continued …

- The insurance is mainly delivered via the partner-agent model where professional insurance companies work together with agents like microfinance institutions and/or health management organizations to provide an insurance package to low income households.

- Examples of insurance products that are provided to the informal economy under this partnership are:

(i) Group personal accident/disability insurance. (ii) Health insurance.

Group personalaccident/disability insurance

• Partner agent model: Insurer (AIG) – MFIs - Clients• Group personal/disability insurance provides protection to

the client and his family, should he or some of his family members die or suffer from a disability arising out of accident.

• The insurance product is provided on a group basis following concerns about economies of scale and risk control.

• The insured must be a borrower from a participating MFI. • Group personal/disability has become mandatory for all

borrowers from nearly all participating MFIs.

Group personal/disability insurance continued …

• Minimal administrative responsibilities of the program: The insurer (AIG) provides the insurance service, while MFIs recruit new borrowers using their various strategies. The borrowers virtually all work in the informal economy (rural or urban).

Health insurance

• Health insurance seeks to provide clients, and often their families, protection against household income shocks provoked by health-related problems.

• Microcare that has developed and tested a low-income health insurance product and associated management control systems since 2001.

Health insurance continued…

• The project targets:

- The working poor in the informal sector (through MFIs, Cooperatives and Trade Associations, who help administer the program by signing up clients and processing bills).

• The formal sector (companies with more than 50 employees who provide free insurance cover to low paid employees).

Health insurance continued ….

• Comprehensive control and management systems. - Client identity verification is achieved by 2 means:

- The client’s photo and general profile is accessible from the Microcare database,

- each client carries a Microcare smart ID card which has their photo and details printed on it.

- At each main contracted health service provider hospitals and clinics, there is a Microcare nurse running a computerized check-in desk, which is networked to the central office database.

Benefits of the partner-agent model

• In the partner-agent model, the insurers, agents and clients all tend to benefit.

• Insurers utilize the efficient delivery mechanism of the MFI agent, which provides the sales and basic services to the client in the field which may help lower overall costs.

• The products have helped them profitably enter a new market, one of their primary objectives.

Benefits of the partner agent model continued …

• MFIs use the relationship to get health care financing to their clients with limited administrative burden and no risk.

• The product reduces their default rate, provides an additional source of revenue and keeps groups from having to repay loans of deceased members.

• The product provides benefits to the borrowers as well their families in the case of accidental death (payment of loan and interest, and funeral expenses) .

• Thus there is a positive impact on social protection.

Challenges in managing microinsurance schemes

• Institutional weakness in the areas of management, administration and technical expertise, and data systems, which leads to:

- weak communication and coordination between the partners.

- poor marketing of the products.- lack of transparency.- weak accountability.

Institutional weaknesses continued …..

• A need to: improve institutional managerial and administrative and technical capacities; develop more efficient transactional and informational systems;

Poor client understanding of insurance

• Little motivation of the loan officers to “sell” the insurance to the clients where the micro-insurance is sold as part of a loan package.

• The lack of understanding of insurance leads to: - a low claims ratio. - a low level of client satisfaction concerning

insurance and the MFI in general. - For the insurers - a hindrance to the growth of

customer relationship and the adoption of other risk management products that the companies offer or could offer.

Poor client understanding continued…

• More investment in client and staff education is needed for effectiveness performance of the insurance schemes

Limited coverage

• Access to the market for insurance is generally limited by the mechanism of reaching the poor via agents like MFI.

• The partner agent model that is currently mainly being used restricts insurers from dealing with large groupings of clients; the transaction costs are too high and margins too low to sell insurance directly to the public.

• The group personal accident/disability policy has limited value to the clients as it covers only accidental death.

Limited coverage continued ….

• The industry is faced with a challenge of working out approaches to expand outreach beyond the microfinance borrowers and savers and to meet the needs of the wider market, at lower transaction costs.

Sustainability

• The challenge of developing a policy that is affordable for its clients but also sustainable for the institution.

• Dealing with a small number of clients represents a challenge in terms of costs and sustainability for MFIs.

• Reinsurance is not used because sums insured are too small.

• Reinsurance will be needed as new coverage is added or risk exposure increases.

Summary and conclusions

Challenges• (1) institutional weakness particularly in the areas of

management, administration and technical expertise and data systems.

• (2) Lack of client knowledge of insurance policy. (3) limited coverage due to the restrictive mechanism of reaching the poor via agents like MFI.

• (4) Restrictive insurance policy that limits the demand for insurance;

• (5) Sustainability

Recommendations

• There a need to: • (i) improve institutional managerial and

administrative and technical capacities;• (ii) develop more efficient transactional and

informational systems; • (iii) Ensure client education and awareness;

increase market outreach through other approaches;

• (iv) ensure sustainability.