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Microinsurance: where to start?

Video on the different types of microinsurance products presented by Craig Chruchill from the International Labour Organization.
Institutions are considering how they might involve insurance in their operations, they’ve been hearing a buzz about micro insurance and think maybe that’s something they should get involved in and typically the way they start is by offering some sort of credit life product. What that means is that if the borrower dies then insurance will pay off the loan and the MFI is no longer vulnerable, which is helpful in circumstances where MFIs are involved in group lending and they don’t want to have to go out to the group and ask them to to pay for a borrower who is deceased. Even if the MFI is doing individual lending it’s helpful
because they don’t want to have to go knock on the door of a spouse and say: “Oh very sorry to hear about, you know, Mr. X or Mrs. X, but by the way she still owes us three hundred dollars. So that’s partly the motivation is really to protect the MFI but in practice that doesn’t do a particularly good job of protecting clients very much from the risk that they’re exposed to and so the main recommendation that we’re giving around credit life is that you really should be more than just covering the loan.
Ideally it should perhaps cover, pay the family some sort of benefit so that people can see that the insurance works, and this is the the logic of market development logic that we see is that if you’re trying to sell insurance to people who’ve never had it before they are unlikely to buy it or if they buy it they may not renew and so what we want to do is to create an environment where by linking insurance to loans it enables them to have exposure to insurance without making a purchasing decision and so really the MFI has an important role to play in demonstrating the value of insurance to its clients.
And so, when you think about adding additional benefits to this so that the clients really benefit you need to understand what would they want to have and also what would the MFI want to have? And for this reason it’s useful to understand what risks the clients are exposed to that insurance might be able to help them protect Against. Some MFIs have done, something i would recommend, which is to analyze their the loan delinquencies, any loans that are outstanding and late… to try to understand what’s the root cause of it. Maybe because they made a bad credit decision and gave it to somebody who didn’t deserve a loan in the first place.
But often it’s because some sort of risk has happened to the household or the business that makes it difficult for the borrowers to repay and by analyzing the causes of delinquency it could pinpoint some key risks that the MFI might want to help its clients manage, because if the MFI is helping clients manage risks more effectively it’s effectively managing the risks for the institution itself, and so what you often see are wanting to cover the life of a spouse, and particularly for women borrowers they actually more interested in covering the life of their spouse than for covering themselves.
And life insurance tends to be the easiest thing to to cover but it’s also often not the thing that people are most concerned about, the insurance or the risk that people tend to be most concerned about…So, there’s life, there’s health risks and then there’s risks associated with their their income generating activity and so for farmers it would be agriculture risks, for micro-entrepreneurs it might be risks associated with their businesses perhaps staff or damage in hurricane or typhoon for example. So what we want to see MFIs doing is using their relationship with their clients to evolve the product offering overtime, to hopefully offer services that better reflect the needs of low-income households with the the loan being the entry point.
We have also seen MFIs use savings as an entry point, and this is really interesting approach as well because it, the problem with the loan being the entry point is that when the loan ends people don’t have insurance anymore unless they automatically renew their loan. So, sort of one key recommendation is if you are doing credit linked insurance is that you need to have a plan to enable people to continue with the coverage after the loan ends so that they can continue to be protected.
Another approach would be to link it to saving so that people don’t have to be in debt to have insurance coverage, and this can be designed in a way that actually benefits the MFI if you can link it to increasing savings balances. We’ve seen MFIs use insurance as an Incentive, that if they have a minimum balance of fifty dollars in their account or one-hundred dollars in the account, whatever the right threshold, that they would get free insurance. And again, this is a way of giving people exposure to insurance without them making a purchasing decision and then once they
see that it’s working then you can say: Well in addition to sort of the basic benefit that you get through the free insurance linked to your savings account would you also want and you do the cross selling or upselling approach that then they make a purchasing decision but first you really need to demonstrate that insurance works effectively. So those are some of the key tips in terms of getting started.
And one final point a lot of Organizations focus a lot on consumer education to help people understand insurance and how it works, and i would invest more and staff education because really it’s the the frontline staff, the loan officers, the tellers, whoever is engaging with the clients who need to believe in insurance because they’re the ones who are going to be able to convince their Clients, their members, to be able to buy the insurance. And so the starting point is really staff education so that people believe in insurance.

Craig Churchill is probably the most well-known expert on micro-insurance, partly due to the publication of his book “Protecting the poor: A microinsurance compendium”.

In this video, he will share with us what he would do if he had to launch a new microinsurance product in a microfinance institution, where he would start and which type of microinsurance product he would favor. The idea here is to provide you with a more practical perspective on the business of social enterprises.

Before watching this video, I want you to think about the different types of microinsurance products. We have just seen some key challenges faced by MFIs willing to offer microinsurance.

Imagine you are hired by a MFI to think about a potential new microinsurance product.

How would you start?

Which type of insurance product do you think is the easiest to start with?

You can discuss this in the comments section!

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