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Microinsurance:
Reducing the vulnerability of the
poor
Dr Dermot Grenham FIA
13 May 2010
What I will cover
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Context
Definition
Examples
Parties
Actuarial input
Issues
What problems is microinsurance trying
to solve?
Poverty
1.4bn live on less than $1.25 a day
(World Bank)
Vulnerability
The aim is not just to get people out of
poverty but to prevent them falling back
into poverty as a result of shocks eg
extreme weather events
Social
exclusion
Traditional means of risk management
and transfer may not provide a
complete solution.
The impact of
One of the shocks that poor people may
climate change be affected by is the impact of climate
change which may increase the
incidence of hurricanes and flooding
Risks faced by the poor
Lifecycle
marriage and birth,
education, healthcare, home-making,
widowhood, old age,
death and the need for an inheritance
for one’s heirs.
Structural
These tend to be long-term or
permanent changes in the national or
international economy.
Include seasonal factors that affect
income and expenditure.
Crisis
Sudden, unexpected shocks to the
household that disrupt its ability to
generate income, and are particularly
difficult to manage without access to
insurance and/or savings.
Risk mitigation strategies used by the
poor
Formal
insurance
CIC
FINCA Uganda
Informal
insurance
Harambee projects
Risk pooling
Mutuals
Savings
In-kind savings, saving at home,
Rotating Savings and Credit
Associations,
Accumulating Savings and Credit
Associations,
saving with MFIs and even (in a few
cases) with formal sector banks.
Diversified
sources of
income
If one source dries up then the poor
have others they can rely on
Who is insured by whom?
What is microinsurance?
IAIS definition
Microinsurance is insurance that is
accessed by low-income population,
provided by a variety of different
entities, but run in accordance with
generally accepted insurance practices.
Low income
populations
Not just low but possibly non-regular.
Income mainly from the informal sector
No bank accounts
Entities
Insurance companies
Mutuals
NGOs
Insurance
practices
Product design and pricing
Risk pooling
Solvency requirements
Types of microinsurance
Crop
Indemnity or index based
Weather – rain, hurricane
Production or price
Livestock
Disease
Weather
Production or price
Property
Fire
Theft
Life
Microfinance related
Credit
Funeral plan
Health
Indemnity
Cash plan
Who is involved?
Insurance
companies
Local and international
Reinsurance
companies
International
Governments
Sponsoring
Subsidising
Overseas Development Agencies (DfID)
Regulators
Need to decide how to regulate
NGOs
Provide access to poor people
Respected names
Subsidise insurance
IFIs
World Bank/IFC
UN/ILO
Actuarial input
Product design Simple or complex?
Indemnity or index?
Risks covered
Level of payout
Pricing
Historical data analysis
Allowance for trends
Loadings for expenses, cost of capital
and profit
Level of underwriting
Solvency
Calculating technical provisions
Calculating capital requirements
Assessing reinsurance needs
Issues
Affordability
Not just affordable but valuable
Distribution
How to access the poor in a cost
effective manner
Premium collection
Regulation
Sales practices
Licensing
Pricing and solvency
Product design Understandable
Claims
process
Cost effective
Basis risk
Financial
education
People are unlikely to buy unless they
understand what it is they are buying
and how it will help them.
Profitability
Long term sustainability without
subsidies
Scale
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