RISING TO THE CHALLENGE OF GLOBAL DEVELOPMENT

INITIATIVES: CASE STUDY OF WEATHER INDEX PILOT IN

MOZAMBIQUE

MICROINSURANCE INNOVATION SEMINAR, Lusaka, 4 Nov. 2013

Presentation by Israel Muchena Technical Director – Hollard Mozambique

CONTENTS • Background info • Why explore microinsurance • Mozambique Case Study • Guiding principles • Enabling regulatory framework • Key observations • Next steps

KEY INDICATORS Size of Population: 24.09 m

GDP Growth: +/-7.5%

Life Insurance: $22.7 m General Insurance: $126 m. Penetration: Less than 1%

Bankable population: 12% of

population (2009) Population below the poverty line:

52% Mobile phone users: 7.85m (2011)

MOZAMBIQUE

WHY EXPLORE MICRO-INSURANCE? • “Market failure” of traditional models

• Low penetration • Lack of economies of scale • Low efficiencies & high transactional costs • Saturation • Spread of risk?

• Global financial inclusion mega-trend • Millennium Development Goals & national

initiatives

BACKGROUND TO INCLUSION EMERGING TRENDS: 1.  Smarter use of appropriate technology 2.  Improved product offering (demand-

driven) 3.  Increased emphasis on the role of

entrepreneurship 4.  Support from a broader range of partners

(Development Agencies & Micro-Lenders) 5.  Enhanced regulatory framework

MOZAMBIQUE CASE STUDY •  Typical micro-insurance product

•  Credit Life •  Funeral

•  New initiatives in Weather Index •  1st generation – weather stations – lack

of infrastructure & data •  2nd generation – exploration of new

technologies

5 CRITICAL PROCESSES

! ITEM! DESCRIPTION! NOTES!1" The"right"

solutions"Continuous"Macro3risk"inquiry"

Basis"for"development"of"holistic"solutions"

2" Committed"partners"

Who"shares"common"goals"with"us"&"is"already"engaged"with"positive"relationships"&"infrastructure?"

In"order"to"ensure"Value"Addition"(not"Subtraction)"in"(Placement)"Distribution,"Collection,"Reporting,"Monitoring,"Verification"&"Settlement""

3" Appropriate"Technology"&"(Service)"Distribution"

Global"Positioning"System" How"do"we"locate"covered"people?"

Remote"sensing" How"do"we"effectively"monitor"covered"perils?"

Index"/"Crop"Science" When/where"is"there"a"loss"&"how"much"should"be"settled?"

4" Sustainability" The"business3case"for"the"initiative"

What"do"all"the"partners"gain"from"this?"

5" Enabling"environment"

Regulatory"framework"and"Best"Practices"

Are"we"doing"the"right"things?"

"

FRAMEWORK FOR RISK INQUIRY

Risk Identification

Risk Evaluation

Risk Control

Financial

Retention Transfer

Physical

Elimination Minimisation

NEW TECHNOLOGIES EXPLORED •  Geographic Information Systems

•  Global Positioning Systems •  Remote Sensing

•  NOAA Climate Prediction Centre via GeoWRSI

•  MODIS Satellite via NASA

2012/13 WEATHER INDEX PILOT

CROP% COTTON%INDEX% MAIZE%INDEX%Index% • Deficit%Rain%

• Excess%Rain%• Low%Temperatures%

• Deficit%Rain%• Excess%Rain%

Insurers% EMOSE/HOLLARD% HOLLARD%Aggregators% IAM/SANAM/OLAM% AgDevCo/DFiD%Covered%Zones% Nampula%Province% Manica%Province%%

GUIDING PRINCIPLES !  Value for money - we always aim to lower acquisition costs !  Genuine need, correctly targeted !  Low Premium: It is essential that premiums be available in units that

are as small as possible. !  Simple: All policy and sales documentation should be in simple

language and product benefits should be designed to be explainable in simple terms.

!  Upgradeable: The insurance needs of the individual change and increase as that person progresses.

!  Embedded, where possible: The relatively low awareness of insurance needs can be overcome by attaching a meaningful insurance products to other products that are better understood by the consumer

ENABLING REGULATORY FRAMEWORK •  Full support of the insurance regulator – ISSM •  Specific treatment of microinsurance in

Insurance Law (Decreto-Lei nº. 1/2010 de 31 de Dezembro)

•  Provision for alternative distribution partners •  Distinct capital requirements •  Substantial reduction of premium taxes •  Emergence of elements of consumer

protection •  Support in clearance of new products

KEY OBSERVATIONS •  Our WII initiative has major potential to

cover all 5 key elements of “inclusion” •  Huge interest in target markets •  Key challenge of premium financing •  Crisis of expectation relative to scope of

cover •  Basis risk •  Building trust

KEY OBSERVATIONS •  Limited underwriting capacity:

•  Cotton: 100% reinsurance •  Maize: 100% retention

•  Claims experience from pilot •  Cotton: more than170% •  Maize: 0%

NEXT STEPS •  More awareness/education initiatives •  Extension to other crops? •  Macro-risk inquiry process •  Expansion of cotton project

•  2012/13 - 43,000 farmers •  2013/14 – 64,500 farmers •  2014/15 – 129,000 farmers