Allianz micro-insurance projects in India provide low-premium protection for those most-affected by poverty. Heinz Dollberg, responsible for Allianz Asia-Pacific, talks about lessons learned.
 | Heinz Dollberg, responsible for Allianz' Asia-Pacific Division |
What is micro-insurance, and how does it work?
Micro-insurance is protection of poor people and their families against specific perils like death, illness, weather catastrophes, etc. In principle, micro-insurance works like any typical insurance business.
But there are several things that differentiate it from normal insurance. First, it is group insurance that can cover thousands of customers under one contract. For example in India, Allianz covers 42,000 customers under one contract.
Second, micro-insurance requires an intermediary between the customer and the insurance company. Preferably, this intermediary is a non-governmental organization (NGO) or microfinance institution, for example a rural bank that can handle the whole distribution and most of the administration process.
How do you reach the clients?
The staff of the distribution partner, in our case the social workers of Activists for Social Alternatives (ASA), take part in local town meetings, or visit people at home to advise them about financial planning. They have the infrastructure we are lacking, and most importantly, are trusted by local people.
Why is it so important to work with a local, grassroots NGO or microfinance institution?
A "well-rooted" organization will be accepted and trusted. This kind of trust often still has to be earned by the large insurance companies in developing countries. Also, from a financial standpoint, it would not be viable for us to access remote villages to collect premiums of less than one euro.
 | Access to Financial Services (click on the image to enlarge)Find out what fraction of households in a given country has access to financial services |
How much do micro-insurance clients have to pay?
Currently, the only product we are offering is a micro-life insurance policy, which costs 87 cents per year. The coverage in an event of natural or accidental death is 370 Euros.
Is this a profitable business for you?
We currently insure 42,000 members under the ASA contract and we are working to increase this number. We have also considered establishing micro-insurance contracts with more NGOs and microfinance institutions, not only in India, but also in Indonesia. This is not the kind of scale that makes a company rich, but through efficient processing and group policies, micro-insurance can be made financially sustainable. In the medium term, it opens the door for us to a huge potential market.
What are the largest challenges that you are facing?
Raising awareness is the most important thing for us. People in poor regions are not familiar with the concept of insurance. We are working around this problem by cooperating with local NGOs that are very trusted institutions in the regions where they work.
Furthermore, we need to build up an efficient infrastructure by increasing the capacity of microfinance institutions or NGOs that can handle insurance policies at such a large scale.
What is the typical micro-insurance product?
Products need to be designed to fit the needs of the local market. For example, we include coverage for funeral costs and outstanding debt in our life insurance policy, because this is what people would need. We are also exploring the costs and opportunities of a health product.
Isn't it the task of governments - and not financial institutions - to alleviate poverty and provide health care insurance?
In most developing countries social protection systems are underdeveloped and generally only cover employees with formal employment. Workers in the informal economy are left to their own devices, or rely heavily on the support of their community. NGOs and microfinance institutions that offer micro-insurance can fill this gap.
Don't poor people have things to worry about other than buying insurance?
Precisely because they have so many other things to worry about, they need a social security net. The risks faced by the poor are much the same as those for most individuals, but research has shown that they experience those risks with greater frequency and with a relatively greater financial impact - and that they are well aware of this fact.
For example, poor people often live in areas prone to flooding, or work in factories under very hazardous conditions. The fact that they have little money to respond to those risks makes them even more vulnerable. For these poorest of the poor, micro-insurance is a form of risk management.
Why should people take out insurance instead of just using micro loans or savings if they require medical treatment?
In poor regions of India, we have found that there are often insufficient savings available and a substantial problem with debt exists. Many households are running the risk of falling into debt, because they are not able to pay back loans. Our partner, the German Agency for Technical Cooperation (GTZ), has therefore developed a micro-insurance product, rather than a micro-loan product.
Savings and credit may help people cope with minor and foreseeable financial hardships, such as education costs. Micro-insurance serves to cover expensive and infrequent risks, such as hospitalization, death and disability.
This all sounds fine, but what is your interest in pursuing this activity at the end of the day?
We are still examining the scope of this market potential. If we successfully demonstrate to regulators and parliaments in those countries that we have a long-term interest in the respective market, it will help show that we are not only focusing on the profitable middle class, but also poorer groups in societies. Up till now, all the activities described run on a non-profit level. If they are successful, we hope to identify a medium-term business perspective for private insurance companies with high benefit for poor population groups.
editor: Julia Leufen
publishing date: July 5, 2006
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Readers' Comments:
It is excellent that Allianz is doing a great job in the field of Micro Insurance to the needy poor. Hats off. May I call it a Role Model set for others to follow suit.
Dr.D.Ilangovan, Prof. of Commerce, Annamalai University, Tamil Nadu, India
