RIMANSI Organization for Asia and the

Pacific, Inc.

Overview What risks do poor people face

and how do they protect themselves?

What is microinsurance?

What are the difficulties in providing insurance to poor people?

What are some microinsurance delivery models?

What are some dos and don’ts for donors?

What Risks Do Poor People Face?

Key Risks

Death

Illness or injury

Loss of property (theft, fire)

Natural disaster (earthquake, drought)

“Life is one long risk” Microfinance client in the Philippines

“Life is one long risk” Microfinance client in the Philippines

How Do Poor People Protect Themselves from Risk?

PreparationPreparation

CopingCoping

Prevention and AvoidancePrevention and Avoidance

• Careful sanitation• Identifying business opportunities• Careful sanitation• Identifying business opportunities

• Saving• Accumulating assets (i.e., livestock)• Buying insurance• Educating children

• Saving• Accumulating assets (i.e., livestock)• Buying insurance• Educating children

• Taking emergency loans • Depleting savings• Selling productive assets• Defaulting on loans• Reducing spending

• Taking emergency loans • Depleting savings• Selling productive assets• Defaulting on loans• Reducing spending

Alternative Coping

Strategies

Alternative Coping

Strategies

Social Conditions

Social Conditions

Education, Biases,

Risk Tolerance

Education, Biases,

Risk Tolerance

Cash FlowCash Flow

Planning PropensityPlanning

Propensity

Understanding the Demand for Risk-Managing Financial Services

The demand forThe demand for

Liquid savings Emergency loansMicroinsurance

depends on

The demand forThe demand for

Liquid savings Emergency loansMicroinsurance

depends on

Poverty Level

Poverty Level

Type of Risk

Type of Risk

Very Large

Small

Certain Highly Uncertain

Degree of Uncertainty

Relative Loss / Cost

Life Cycle Events

Death

Disability

He

alth

Pro

perty

Mass, Co-

variant

Different Financial Services for Different Risks

Source: Warren Brown and Craig F. Churchill, Insurance Provision in Low-Income Communities, Part I.Source: Warren Brown and Craig F. Churchill, Insurance Provision in Low-Income Communities, Part I.

Flexible Savings and

Credit

Flexible Savings and

Credit

InsuranceInsurance

Flexible Savings

Partial protection

Flexible Savings

Partial protection

What Is Microinsurance?Protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved.

Protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved.

To serve poor people, microinsurance must be:

Responsive to their priority needs for risk protection

Easy to understand

Affordable

To serve poor people, microinsurance must be:

Responsive to their priority needs for risk protection

Easy to understand

Affordable

ONE

STRATEGY

ONE

STRATEGY

Basic Insurance PrinciplesLarge number of similar units are exposed to the risk(risk pooling)Large number of similar units are exposed to the risk(risk pooling)

Policyholder control over the insured event is limited (minimize moral hazard and adverse selection)Policyholder control over the insured event is limited (minimize moral hazard and adverse selection)

Insurable interest existsInsurable interest exists

Losses are determinable and measurableLosses are determinable and measurable

Losses should not be covariant (catastrophic)Losses should not be covariant (catastrophic)

Chance of loss is calculableChance of loss is calculable

Premiums are economically affordablePremiums are economically affordable

11

22

33

44

55

66

77

Microcredit through the years

EMERGENCIE

S

EXTREME POVERTY

Emergencies causing sickness and eventual death often push families to traditional means of risk protection (selling assets such as livestock, land, precious metals, drawing down on savings and contingency borrowing) which erode the household’s net worth.

- CGAP DONOR BRIEF. No. 16, December

2003

Over two billion people worldwide lack any type of formal social security protection. Poor people are the least likely to benefit from coverage, yet they are the most vulnerable to risk and economic stress.

Thus…Risk protection needs to be part of any effective strategy for poverty reduction;

Microinsurance can be a better form of risk protection for the poor;

Why Microinsurance?

DefinitionMicro-insurance is a financial product/service that the poor are willing and able to pay for so that they are able to manage their risks better.

The poor = indicators of poverty

willing to pay + able to pay

Risk = the probable loss arising from a financially de-stabilizing or catastrophic event

THE NEED:

• Unpredictable catastrophic events (e.g., death, sickness, disease and disability in the family, natural and man made disasters)

• Serious social, political and moral consequences result from financial crises (loss of business, malnutrition, school drop out, civil unrest, entry into the underworld of crime, drug addiction and sexual exploitation)

• Children and women are the most vulnerable to these consequences

THE OPPORTUNITY:

• the enterprising poor are willing and able to participate in micro-insurance programs;

• Many microfinance institutions, co-ops and NGOs in the Philippines and other developing countries are already running in-house mutual benefit funds in response to member/client demand (informal and unregulated operations);

• MFIs social network can be tapped to cost effectively provide access to microinsurance;

THE BUSINESS ADVANTAGE:

• existing channels to the poor that can be harnessed for low cost transactions and education

• existing microfinance distribution channels may translate into more efficient micro-insurance operations.

• regular interactions with clients translate into:

+ better knowledge of demand patterns

+ better design of insurance products

Microinsurance MBA (Philippines)

Mutual Benefit Association (MBA)o any society, association or corporation

formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of paying to relatives of deceased members a fixed or any sum of money…

Source: Chapter VII, Title 1, Sec. 390 of the Insurance Code of the Phils.

Microinsuranceo refers to the insurance business activity of

providing specific insurance products that meet the needs of the disadvantaged for risk protection and relief against distress or misfortune.

IMC 9-2006, October 25, 2006

Microinsurance Producto premium computed on a daily basis does not

exceed ten percent (10%) of the current daily minimum wage rate for non-agricultural workers in Metro Manila;

o maximum amount of life insurance coverage is not more than five hundred (500) times the daily minimum wage rate for non-agricultural workers in Metro Manila.

IMC 9-2006, October 25, 2006

Microinsurance PolicyFollowing the definition, a micro-insurance policy

shall have the following features:

o simple product design that clearly identifies the face amount, benefits and terms of the insurance uniformly applied to the clients;

o low amount of premium/contribution;

o policy contract is easily understood by the client/member;

o straightforward and uncomplicated documentation requirements;

o frequent collection of premium/contribution that coincides with the cash-flow of the insured;

o fast and timely payment of insurance claims

MBA Guaranty Fundo Initial: P5,000,000.00 (USD100,000)o Every year thereafter, all microinsurance

MBA’s must increase their Guaranty Fund by an amount equivalent to five percent (5%) of their gross premium collections until the Guaranty Fund shall reach twelve and a half percent (12.5%) of the required capital for domestic life insurance companies.

IMC 9-2006, October 25, 2006

MBA (from MFI/COOP)As a business organization, it is fully able to take advantage of synergies in financial and social transactions that arise when it partners with the credit and savings co-op for the collection of premiums, verification and payment of claims and pre-membership and membership education.

MBA vs. Commercial

*MBAs can work well with the commercial insurance companies through reinsurance treaties.

Only the policy holder with option to cover family members but with additional premium

Includes legal dependents of the members covered in a single premium

Coverage

Most insurance companies can settle claims within one month from date of claim

Several documents are required, which vary from one insurance company to another

Can be done as early as 1 to 3 days from the time of notification but no longer than 1 week if claim documents are complete

Simplified documentation

Payment of Claims

Has to shell out a lot of funds but bankruptcy can be avoided through reinsurance facilities

Catastrophic Claim

Higher premiums generate more benefits

Paid contributions stay with the association

Level contributions, level benefits

Contributions/Premiums

For profit, stock companyService to the membersOrientation

Board of Directors composed of private individuals who have invested in the company

Board of Trustees composed of members of the MBA who know the needs of their co-members

Policy Making Body

COMMERCIAL INSURANCE COMPANY

MUTUAL BENEFIT ASSOCIATION (MBA)PARTICULARS

RIMANSI?

What is RIMANSI?

A regional resource center based in the Philippines to help rural and urban poor households in Asia and the Pacific improve their access to affordable yet adequate micro-insurance services, through microinsurance business support services

RIMANSI: RISK MANAGEMENT SOLUTIONS

As business development support provider:

Catalyst to facilitate and support efforts of MFIs/MBAs to provide better access by the poor to micro-insurance products and services

Mechanism for risk pooling and cost sharing

Forum for performance based monitoring and evaluation

Advocate for policy and regulatory reform

Founding MembersAlalay sa Kaunlaran, Inc.

CARD MBA, Inc.

CARD, Inc.

CARD Bank, Inc.

Kasanyangan Foundation, Inc.

People’s Alternative Livelihood Foundation of Sorsogon, Inc.

Rural Bank of Talisayan, Inc.

USWAG Development Foundation, Inc.

Vision

A network of professionally-managed mutual benefit associations that provide affordable, comprehensive, quality risk protection to millions of poor people in Asia and the Pacific

Mission

We are a resource center that develops and offers risk management solutions to member-owned micro-insurers, especially mutual benefit associations, strengthening their capacity in providing risk protection services to the poor on a sustainable basis.

We advocate for a policy environment conducive to micro-insurance development.

Business Objectives

Assist the partner-MFIs establish their own micro-insurance programs especially MBAs

Design and formulate appropriate micro insurance products for the poor.

Formulate and promote Performance Standards(SEGURADO) aligned with international best practices.

Promote mutual assistance and sharing of resources, technology and information among stakeholders.

Build the financial infrastructure for micro-insurance through research, education and policy advocacy.

Become a self-reliant and sustainable service provider.

Service Package 1:

Needs AssessmentMarket research (where applicable, conversion of in-

house insurance programs into formal and professionally run MBAs)

Business planningOperations training & member mobilizationOperations start upGovernance set upRegistration & licensing Design of MISMonitoring during the initial months

Service Package 2:

assistance in yearly audit and relicensingnew product development (life insurance variants, non-life,

health, education, savings features)improvement of product featuresmember satisfaction surveys and service improvementupgrade of MIS and accounting systemsmonitoring adequacy of actuarial reservesBOT and management trainingcreate pool of practice expertsestablish meso level support organizations

RIMANSI Operations

PHILIPPINES

6 licensed MBA Partners

7 pre-MBAs

CAMBODIA

• Cambodia Health Committee Ltd. (CHC) launched its microinsurance pilot in January 2007

•Vision Fund Cambodia (VFC) launched in October 2007

- CHC & VFC

INDONESIA

INDONESIA• KBPR Arta Kencana

VIETNAM

TYM Women’s Union Fund

M7 (Coalition of 7 MFIs

Thank you!