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Client Demand: Chutes & Ladders The poor face huge risk They seek to mitigate risk often informally Informal mechanisms are poor value and insecure Insurance is safety net 24% entering hospitals left below the poverty line
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Micro Insurance
Richard LeftleyPresident & CEO
20th March, 2010
Helping the poor weather life’s storms
The poor do not buy insurance
Premiums (in
USDmn) 2006
Premiums in % of GDP
2006
Premiums per capita (in USD)
2006North America $1,258,301 8.67% $3,804.0Latin America and Caribbean $71,428 2.42% $126.7Europe $1,484,881 8.27% $1,745.7Asia $800,819 6.63% $205.0Africa $49,667 4.77% $53.6World $3,723,412 7.52% $554.8Industrialised countries $3,390,180 9.18% $3,362.2Emerging markets $333,231 2.69% $59.8
Client Demand: Chutes & Ladders
•The poor face huge risk•They seek to mitigate risk often informally•Informal mechanisms are poor value and insecure•Insurance is safety net•24% entering hospitals left below the poverty line
Supply from insurers is available
• Commercial insurance companies are interested in this market
• They need some help accessing it• Life & property insurance is
available• Crop and health harder to secure
What’s needed to make it work?
Risk Carrier
Back OfficeFront Office
Introducing MicroEnsure
• Started working on microinsurance in 2002
• MicroEnsure established in 2005• Currently serving 3,500,000 lives globally• Gates Foundation grant; $25m over 5
years• Expand into 11 new countries• Serve 25m people by 2012 – life, health, crop
What does MicroEnsure do?
• Designs the product around client need
• Negotiates the product with insurer• Trains the loan officers• Provides education to the poor client• Handles all data entry and reporting• Provides excellent claims servicing
Why focus on weather insurance?
• Over 2.4 billion people live on less than $2 a day, and despite the increasing urbanisation of poverty, the majority (75%) are rural.
• In most parts of Africa and Asia, farm sizes have a long-term trend of shrinkage through inheritance and population growth. In India, average farm sizes went from 2.6h (1960) to just 1.4h (2000)
• Agriculture has a special power in reducing poverty“Cross-country estimates show that GDP growth originating in agriculture is at least twice as effective in reducing poverty as GDP growth originating outside agriculture”
(World Development Report, World Bank 2008)
Weather index products
• Demand from small hold farmers for inputs• Rural banks and MFI’s worried about risk• Need to mitigate climatic risk but
traditional insurance has issues; claims payment slow and pricing dependant on subsidy
• Solution is weather index products• Quick and transparent claims trigger• Index available for a range of risks
Yield based vs Index based
Multi-peril Crop Insurance
• Loss assessments• High Administrative
Costs• Moral Hazard• Adverse Selection Malawi experience
>500% LR
Index-Based Insurance
• Objective triggers and structured rules for payouts
• Based on figures provided by weather station.
Highest 14%
High expansion plans
Drought index insurance
• Typically, farmers must be within 20km of the weather station.
• The cover is specific to a type of crop or particular seed whose growing characteristics are well understood.
• If the rainfall is less than a given amount at a specified growth stage, a graduated payout is automatically triggered, dependant on the number of (mm) the rain is below the threshold.
Drought Index products
Deficit Rainfall (mm) Payo
ut ($
)
PHASE 1Sowing & Establishment
PHASE 3Yield Formation to Harvest
Deficit Rainfall (mm) Payo
ut ($
)
Deficit Rainfall (mm) Payo
ut ($
)
PHASE 2Growth & Flowering
Dekadal Cropping Calendar* Sowing Window &Dynamic Start Date
* Cumulative rainfall per dekad is capped to prevent excessive rainfall impacting the phase-wise total
1 1.5 1.5 1.5 1 1 1.5 1.5 1 1 1 1 0.75 0.751 0.75 W
1 1.5 1.5 1.5 1.5 1.5 1.5 1 1 1 1 1 1 11 1 W
Weighted Cumulative Weekly Deficit, DSum (W * max(0 , X – Weekly Cumulative Rainfall))
e.g. 1 * 2 + 1 * 10 + 1 * 15 + 1 * 10 = 37
80mm
25mm
15mm10mm15mm23mm
85mm90mm85mm87mm95mm83mm
Weighted Cumulative Weekly Excess, ESum (W *max(0 , Y – Weekly Cumulative Rainfall))
e.g. 1.5 * 5 + 1.5 * 10 + 1.5 * 5 + 1 * 7 + 1 * 15 + 1 * 3 = 55
15 Nov – 20 Dec
Transplanting Window &Dynamic Start Date
Total Contract Payout =max(0, D-85)*$1 + max(0, E – 70)*$1Max Payout $750 per hectare
Malawi Weather Index Insurance
• Joint World Bank / MicroEnsure project• Zero credit available in 2004 to farmers• Developed ground nut, maize, tobacco
etc• Loans for as little as USD 200 per acre
increase yields by more than 100%• Today over USD7m in credit available• Products launched in Rwanda, Tanzania,
India and Philippines in 2009
Typhoon Frank
Challenges with index insurance
• The biggest challenge is the availability of data.• In order to properly price weather indexed products,
decades of data are preferred.• In addition, data must be made available in a timely
fashion so claims can be made.• Issue around cost of the products.• Other challenges include managing basis risk,
farmer education, and ensuring cash crop producers are part of a value chain and able to access farm extension services.
Weather insurance impact
Why provide health insurance?
• The product that clients demand most• Perceived frequency of use• Highest out-of-pocket expense• Poor public service available• Private clinics demand payment upfront
• Greatest impact on the poor, especially women and children
Huge challenges
• By far the hardest insurance product to provide.• Lack of reliable data for pricing• Potential for fraud from users• Certainty of fraud from healthcare providers! (if
they exist)• Frequency of claims leads to high transactional cost• Lack of willing insurers / reinsurers
• Most people still believe it is impossible
Indian micro health product
• Provides $500 cover for a family of four per year
• Service provided on a cashless basis• In-patient only cover• Costs $8 per year for family, paid weekly• Pre-existing and maternity from day-one• Sold through MFI’s, NGO’s and church
How to expand beyond India?
• Clearly demand in Africa & Asia• If we want to do cashless then we
need to have TPA functionality• Will need a willing risk carrier as local
insurers mostly unwilling to play• Healthcare infrastructure??
Build it or buy it!
• Buying a TPA from India for use elsewhere
• Built our own risk carrier• Hollard Insurance Company (SA)• Virtual cell captive structure• Enables us to design, price and sell products• Importantly authorizes us to pay claims• Loses paid by Hollard, profits split 50:50• World first micro insurance cell captive
Next stop Tanzania
• Partnered with Anglican church• Bringing our TPA and cell captive• Ability to pay $12-15 but price is $50• Ailment based approach tried• Malaria and maternity are major needs• Challenges of defining Malaria• Who is best placed to sell to this market?
Thankyou!
www. microensure.com
richard.leftley @ microensure.com