INAFI Bangladesh Presentation

On

A SWOT Analysis of Microinsurance in Bangladesh

Rashed Al HasanProgramme OfficerINAFI Bangladesh

July 3, 2007Dhaka, Bangladesh

The Practice of Microinsurance in Bangladesh: The Practice of Microinsurance in Bangladesh: From MFIs/NGOs perspective From MFIs/NGOs perspective

• The NGOs/MFIs came into the Microinsurance The NGOs/MFIs came into the Microinsurance scene in the late 1990s and early 2000s. scene in the late 1990s and early 2000s.

• Important players in Microinsurance are Important players in Microinsurance are BRAC, Grameen Kalyan, ASA, Proshika, BRAC, Grameen Kalyan, ASA, Proshika, Gonoshashtho Kendra, Sajida Foundation, Gonoshashtho Kendra, Sajida Foundation, Shakti Foundation, Dushtha Shasthya Kendra, Shakti Foundation, Dushtha Shasthya Kendra, Integrated Development Foundation (IDF) and Integrated Development Foundation (IDF) and Society for Social Services (SSS). Society for Social Services (SSS).

Microinsurance Products offered by Microinsurance Products offered by Commercial Insurance Companies in Commercial Insurance Companies in

BangladeshBangladesh• In Bangladesh, usually Microinsurance products In Bangladesh, usually Microinsurance products

are offered by Life Insurance Companies.are offered by Life Insurance Companies.

• The Delta Life Insurance is the first private The Delta Life Insurance is the first private regulated insurance company in Bangladesh that regulated insurance company in Bangladesh that entered in the Microinsurance in 1988, inspired entered in the Microinsurance in 1988, inspired by the growing success of the Grameen Bank and by the growing success of the Grameen Bank and other Microcredit schemes in Bangladesh. Delta other Microcredit schemes in Bangladesh. Delta launched Microinsurance product named launched Microinsurance product named Grameen Bima or village insurance. Grameen Bima or village insurance.

• With the tremendous success of Delta Life With the tremendous success of Delta Life Insurance, some private life insurance companies Insurance, some private life insurance companies came forward to offer Microinsurance products to came forward to offer Microinsurance products to the poor people. At present among the 18 Life the poor people. At present among the 18 Life Insurance Companies 13 companies are identified Insurance Companies 13 companies are identified offering Microinsurance products. offering Microinsurance products.

SWOT Analysis of Microinsurance in SWOT Analysis of Microinsurance in BangladeshBangladesh

StrengthsStrengthsKey

FactorsMFIs/NGOs Perspective Mainstream Insurance Companies

Perspective

Product Simple product design and packaging Comprehensive coverage options (loan protection and life insurance) Diversified products (loan protection, life, health, asset/livestock insurance etc.) Affordable premium rate Short maturity time

Different simple term life insurance and life insurance products with endowment Products are designed and packaged based on actuarial calculationDifferent premium rate based on clients age, sum insured amount, maturity time etc. Different maturity timeProducts contain various benefitsCommitment to continuous improvement

Marketing Set target clients usually Microfinance clients Large client base Wide providers network

Different cliental groups i.e. moderate poor, vulnerable non-poor and middle class people Concentrated business approachCountry wide experienced and trained commissioned agent based marketing Reward system for commission agent

Operations

Simple underwriting processEasy premium collection process ( either once at a time or weekly) Relatively low administrative costsSimple claim settlement process Strongly committed staffs

Structured underwriting process Different premium collection procedures (monthly, quarterly, biannually, annually, single premium etc.) Innovative approaches Efficient management and professional staffs

Strengths…...Contd…..Strengths…...Contd…..

Key Factors

MFIs/NGOs Perspective Mainstream Insurance Companies Perspective

Accounting Books of accounts are maintained properly Some organisations have automated system for Microfinance programme Prepare weekly and monthly financial statements integrated with Microfinance reporting Strong monitoring and internal control mechanismsInvest collected premium as revolving loan fund for higher rate of return

Proper documentation and accounts maintaining Some companies have automated insurance tracking system Prepare financial statements regularly Invest collected premium in government bonds and different financial instruments Financial strengths

Risk Management

Lower moral hazard due to long relationship and continuous visit to the clients, and strong monitoring Less adverse selection due to set clients of Microfinance groupIntegration of insurance products with other products like savings and credit

Lower moral hazard due to standardised products Less adverse selection because of standard client selection format Reinsurance to minimise risks

WeaknessesWeaknesses Key

FactorsMFIs/NGOs Perspective Mainstream Insurance

Companies Perspective

Product Usually products are designed and packaged by considering Microfinance context No actuarial calculation is done Premium rate is not calculated by considering probability of risks and sustainability of products Integrated credit, savings and insurance products No diversified products in terms of sum insured, premium and maturity time.

The products are mainly coming from supply side with less consideration on demand Products features itself sometimes exclude some potential clients like the bottom poor and moderate poor Less risks coverage i.e. only covers life risks Only life insurance products are offering, no other products like health insurance, asset/ enterprise insurance, crop insurance etc.

Marketing No insurance education and awareness for clients Lack of standardised marketing policy No market expansion strategy other than only concentrating on Microfinance clients Only adapt the push marketing strategy Lack of insurance knowledge among the staffs

No insurance education and awareness for diverse cliental groups Lack of standardised marketing Renewal rate is not satisfactory Uneven growth of different policiesLack of interconnectivity between head office and agencies

Operations Insufficient knowledge and capacity to operate insurance programme Tendency to adjust outstanding loan with insurance claims Weak governance and management

Complex underwriting process Premium deposit difficulty Procrastination of claim settlement Poor monitoring enhances irregularities among the agentsLack of coordination among different departments Unfair business practices

WeaknessesWeaknesses …...Contd…..…...Contd…..

Key Factors

MFIs/NGOs Perspective Mainstream Insurance Companies Perspective

Accounting Limited insurance accounting knowledge Poor costing and pricing ability No separate financial statement No separate sustainability and financial ratio analysisPoor Accounting and Management Information System for management decision making

Poor insurance accounting knowledge at agent office levelSome companies don’t have automated system for tracking insurancePoor Accounting and Management Information System at agent office level Inadequate tools to analyse performance of agent as well as each product

Risks Management

Limited ability to assess risksNo compliance management system to comply with insurance regulation No policy for risks management Reinsurance is not possible Higher liquidity risks

Possibility of moral hazard due to poor monitoring of agents The risk of adverse selection is higher due to weak monitoring of agents Some companies don’t have reinsurance facility Some companies have liquidity risks

OpportunitiesOpportunities Key

FactorsMFIs/NGOs Perspective Mainstream Insurance

Companies PerspectiveProduct Design product by addressing the need

and demand of target market Diverse and flexible product designing and packaging will enhance outreach. Product can be designed and packaged through actuarial calculation

Consider the need and demand of target market during product designing and packaging Design diverse products for different client segment

Marketing Wide untapped market Potential demand for diverse products Prospect of horizontal and vertical expansion Linkage with mainstream insurance companies

Large potential market Demand for differentiated products Possibility of horizontal and vertical expansion as people are becoming conscious about insurance Linkage with MFIs/NGOsLower interest rate of banking sector encourages potential clients to purchase insurance

Operations Potential of relatively low operating costs and enjoy economies of scale Operate within the same organisational structure Develop operational manual by following good practices Develop separate insurance department and gradually set up mainstream insurance company

Reduce operational cost through linkage with MFIs/NGOs( Partner-Agent Model: see next Slide) Increase operational efficiency by providing specific responsibility to agents and MFIs/NGOs Develop operational manual by considering good practicesAvailability of professional staffs

OpportunitiesOpportunities …...Contd…..…...Contd…..

Key Factors

MFIs/NGOs Perspective Mainstream Insurance Companies Perspective

Accounting Develop expertise on insurance accounting, product costing and pricing Prepare separate financial statement Analyse sustainability and financial ratio Develop Accounting and Management Information System for management decision making

Enhance insurance accounting knowledge at agent office level through training Develop automated system to track each insurance client Develop Accounting and Management Information System at agent office levelDevelop effective tools and reporting system to analyse performance of agent as well as each product

Risks Management

Develop expertise to assess risksFollow the compliance of insurance regulation Develop risk management policy Strong monitoring tools development to reduce risks of moral hazard and adverse selectionExplore alternative of reinsurance and sign MOU with mainstreaming insurance companies in this regards Reduce liquidity risks through efficient portfolio management and invest premium amount in different financial instruments

Develop strong monitoring tools to reduce moral hazard and adverse selection Sign MOU with Reinsurance companies and keep reserve for reinsurance Manage liquidity risks through efficient portfolio management and invest premium amount in different financial instruments according to investment guidelines of Insurance Act.Government support

Potential Partner-Agent ModelPotential Partner-Agent Model

Mainstream Insurance Companies

(Microinsurance products for

the Poor people)

NGOs/MFIs as Insurance Agent for Marketing of products like - awareness and insurance education to the target clients- Underwriting (issuing insurance policy)- premium collection- facilitate claim settlement process

Potential Microinsurance Clients (the Poor people who are Clients of NGOs/MFIs)

Microinsurance ProductsClaims/Bonus

UnderwritingPremium

Insurance EducationMicroinsurance ProductsClaims Bonus

Premium

ThreatsThreats Key

FactorsMFIs/NGOs Perspective Mainstream Insurance Companies

Perspective

Product Regulation to design product through Actuarial calculation Regulation to take approval of each product from Insurance Regulatory authorityMFIs/NGOs may not get authorisation to offer insurance products according to regulation Regulation not to offer life and non-life insurance products together

Difficult to design products by considering needs and demand According to Insurance Regulation, life and non-life products can’t be offered together by a single entity The products may not be sustainable Exclusion of large potential clients due to product features and packaging Sometimes it takes long time to get approval of product from Insurance Regulatory authority

Marketing Difficult to position product due to lack of insurance knowledge among the clients Might face problems both in horizontal and vertical expansion Probability of higher non-renewal or drop out Market competition

Market confusion and misconception about insuranceMarket expansion and penetration strategy may not be successful Emergence of market competitors Giant multinational insurance companies might enter in the market Merger and acquisition

Operations

Lack of knowledge and experience of staffs about insurance will hamper the growth and sustainability of insurance programme Weak governance and management will affect efficient operations

Clients unwillingness to purchase insurance due to complex underwriting processHigher non-renewal because of premium deposit difficulty Probability of losing potential market and credibility due to procrastination of claim settlement Irregularities and misappropriation of agent will affect efficient operations Inadequate support from MFIs/NGOs, if there is any Partner-Agent model operations

ThreatsThreats …...Contd…..…...Contd…..

Key Factors

MFIs/NGOs Perspective Mainstream Insurance Companies Perspective

Accounting Poor costing and pricing ability will make the insurance programme a losing concern in the long run Limited insurance accounting knowledge may open the door to fraud Without financial and sustainability analysis the insurance programme might face tremendous financial crisis Due to poor accounting and management Information System, the management may not able to take any strategic decision

Poor accounting knowledge may encourage fraudulent Poor performance analysis of agent and individual product might affect the revenue and sustainability

Risks Management

Political and environmental risksPotential regulatory problemsInadequate reserve for risks management and cope with liquidity risks Without reinsurance, it is not possible to settle claims during devastating natural disaster or epidemic

More moral hazard and adverse selection will affect revenue and sustainability Political and environmental risks Lack of reserve for risks management and cope with liquidity risks No Reinsurance to cope with devastating natural disaster or epidemic