Microinsurance expert Craig Churchill explains what he has learned from looking at dozens of microinsurance projects from around the world.
 | "One of the things that we have learned is that the good practices that are out there are not good enough," says Craig Churchill (Photo: ILO) |
About Craig Churchill:
What have you learned from looking at so many different microinsurance projects?
What we have done over the past 3 years is 25 case studies looking at over 40 organizations that are providing insurance to low-income people to try to understand what are good and bad practices. We have synthesized the lessons from those case studies into a publication called "Protecting the Poor: A Microinsurance Compendium," which is primarily targeted at practitioners to help them understand how to better provide insurance to low-income markets.
So, where can insurers do better with microinsurance?
One of the exciting accomplishments was linking insurance to loans, because that was a way to create efficiency, but that only goes so far as to provide coverage of people with loans. So, I think the important effort needs to be made to expand access to savings or transaction bank accounts that people can use as a way to having efficient insurance transactions, particularly paying premiums.
Door-to-door premium collection with very small premiums creates huge administrative expenses, which means that people who have protection through those vehicles are spending much of their premium on administrative costs and little for risk protection.
But one of the things that we have learned is that the good practices that are out there are not good enough. There is definitely a need to push for more innovation, possibly involving technology; certainly more concerted efforts toward improving efficiency and controlling risks. There is definitely significant room for improvement. We are not there yet.
Are financial institutions getting better at identifying the needs of poor households?
An important change is the realization that financial services are not just for income-generating loans or micro-enterprises, but that people have risk management needs, protection needs. It is important to consider the protective side - not just the productive side - because any gains people may achieve through a loan or growing business could easily be setback by a tsunami or even smaller risks at a household or personal level. If you're able to complement productive activities with financial services that assist households manage risks, you'll have a more sustainable impact.
Before jumping into insurance, you have to realize that it is not the only way that people can manage risk. We need to be actively talking about better savings services, as well as emergency credit facilities. People borrow from MFIs and use that money to pay a health care bill or school fees - what people call more consumption needs.
There is an attitude among many microfinance providers that loans for consumption purposes are bad, but there is a need to be rethinking and revisitingthis perspective. I would argue that particularly savings services, as well as consumption and emergency loans, and insurance are relevant financial services for low-income households.
We need to be considering how to design those these services so that they meet the needs of the market and whether those are appropriate. I would argue that they are certainly appropriate.
Is the way insurance companies are going about reaching poor households - through partnerships with local microfinance institutions - the most-effective way?
Many people who have been looking at this issue of microinsurance have been sort of stuck in the notion of microfinance institutions (MFIs) as the primary delivery channel. I think what is needed is for microinsurance to start developing its own identity separate from microfinance.
MFIs are an important and effective delivery channel, but let's take off the blinders and explore other channels - organizations that have interactions with low-income people, ideally financial interactions. This makes it easier to build one financial transaction on existing one to create the kind of efficiency that is needed to service this market.
We also need to look carefully at the flow of funds in these partnerships between insurance companies and MFIs. In some of the case studies, insurance companies, and even their distribution channels, were earning significant sums of money, and very little was flowing back to poor policyholders in the form of claims.
Do poor people generally recognize the benefits of insurance?
Consumer education is a big need. The more people that understand how insurance works and that insurance is not just for rich people, the greater demand will be. If we inject more effort into the consumer education side, then I think we will see some significant results.
But whose responsibility is that? Insurance companies are not likely to want to do it on a generic basis, because that could benefit competitors. Is it government's responsibility to educate consumers? Maybe.
Another potential source of consumer education would be if trade or industry associations assume a promotional role for insurance. Sort of like how the dairy association in the United States promotes milk. They get all these celebrities to say "Got Milk?" That benefits the product and the providers. But you also have to back up promotion with performance, so that you don't reinforce negative or apprehensive opinions.
editor: Valdis Wish
publishing date: November 30, 2006
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