Resource: Protecting the poor: A microinsurance compendium (2 volumes)
Publisher: International Labour Organisation (ILO)
Type of Resource: Paid. Available in Portuguese, Spanish and French as well as English
“Protecting the Poor” is a comprehensive compendium on micro-insurance published by the International Labour Organisation and Munich Re Foundation. The two-volumes of the compendium bring together the latest thinking of leading academics, actuaries, and insurance and development professionals in the microinsurance field.
The first volume of the compendium, published in 2006, covers product design, marketing, premium collection and governance, along with different models for delivery such as the community-based approach, insurance companies owned by networks of savings and credit cooperatives and microfinance institutions.
The second volume, published in 2012, covers more recent innovations to meet the challenges of providing insurance to low-income populations, from new products and delivery channels to consumer education tools, and also examines changes in regulations, providers and schemes.
This volume also provides a specific section on climate change, covering the impact of climate change, microinsurance and weather events, operational challenges and solutions and the role of key stakeholders
Editor Craig Churchill had a background in microfinance before getting the invitation to apply skills and techniques learned there to creating insurance products for low-income populations.
As well as the two books, the ILO has built a catalogue of training materials, which are designed to build the capacity of local insurance industries and made available on a bespoke basis, working through insurance institutes in each country. (Training packages are dependent on funding.)
Churchill says that, as far as Paris implementation is concerned, “it’s really important for governments and policy makers to see the insurance industry as a potential ally, and to see how they can leverage the capacity of the industry to respond to the vulnerabilities that countries face due to climate change.” The problem, Churchill says, is that in many places the local insurance industry doesn’t have this capacity, or the products available, “so what’s needed is for these companies to be strengthened so that they can help governments to manage their exposure to risks.”
Churchill notes that often donor agencies looking to help develop local industries focus too early on difficult risks like natural disaster coverage, when what is really needed is to cater for the ‘bread and butter’ needs of the population and then build on lessons learned there, in terms of products and distribution, to add on more complex risks.
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Another key lesson that Churchill points to from his decade or more of experience is that ‘base of pyramid’ insurance for natural disasters needs to be done on a portfolio basis. “Selling, say, agriculture insurance on a farmer-by-farmer basis just doesn’t make any sense,” he says, “either from a business case perspective or a moral perspective.” Instead, “insurance needs to be approached on a portfolio basis, for example embedded in products people purchase, so anyone who takes a micro loan or buys fertiliser or phone minutes has a relevant insurance built in.”
“Obviously,” Churchill says, “there are disadvantages to this approach if people aren’t made properly aware that they have the cover and what it entails, but there are ways of overcoming those issues so the advantages outweighs the disadvantages of a portfolio approach.”
This is the only basis on which he believes that microinsurance for natural disasters is ultimately scaleable, and the willingness to adopt a portfolio approach is the reason, Churchill says, it has taken off in India, where the government supports programmes that cover many millions of people with crop and other protections.
While there is a cost to governments adopting this approach, it is one that can be budgeted for, while having insurance creates both certainty and enormous savings compared to post-facto relief and rehabilitation efforts. Churchill also notes that it is the lack of volume products that is keeping commercial re-insurers away from micro markets. “There are a lot of pilots, often donor funded, but it only makes sense for the reinsurer if governments or major distribution channels pick it up, for example by embedding it into farmer loans and making it effectively a member or user benefit.” He points out that even in developed countries many agricultural insurances are subsidised.
Churchill says that in his view the best way forward for the microinsurance markets is for governments to develop their own capacity, ideally by creating insurance expertise within departments that are responsible for managing risks of one kind or another, so that “they have people that understand the insurance world and can partner with it to create the products they and their peoples need, especially the vulnerable populations.”
As well as it’s capacity building work, the ILO is also behind an Impact Insurance Facility, which has the objectives of stimulating innovation, unlocking capacity, and accelerating the development of inclusive insurance markets in selected countries.