Analysis of Insurance and Coping Mechanisms: FinScope Tanzania (2006 & 2009), FinScope Tanzania MSME (2010) & AgFiMS Tanzania (2011) Surveys for the Financial Sector Deepening Trust

To analyse the data form the various sources to bring out all the analysis possible on insurance and coping mechanisms for individuals, micro, small and medium enterprises and agribusinesses in order to  Improve the understanding of the nature of risks and coping mechanisms  Help identify market opportunities  Guide the design of appropriate interventions Objectives

Framework of Analysis

Barriers to uptake Uptake Determinants of uptake  Level of insurance product uptake  Type of insurance products used  What factors prohibit insurance product uptake?  Risks  Coping mechanisms implemented when risks events are experienced  Coping strategies  Identification of determinants of uptake in terms of:  Individual/business owner attributes  Household/business attributes  Community/external attributes

Uptake of Insurance Products

Overall levels of uptake of insurance products % of businesses with insurance % of adults with insurance In general, insurance uptake is low

Overall levels of uptake of insurance products – Rural/Urban % of businesses with insurance % of adults with insurance Adults and business owners in urban areas are more likely to have insurance than those in rural areas

Overall levels of uptake of insurance products – Adults 18 years or older by gender (excluding business owners) Males more likely to have insurance than females

Overall levels of uptake of insurance products – Adults 18 years or older by age group (excluding business owners) Likelihood of insurance uptake increases with age

Overall levels of uptake of insurance products – Adults 18 years or older by income generating activity (excluding business owners) Individuals with regular income in the formal sector most likely to have insurance

Overall levels of uptake of insurance products – Adults 18 years or older by total monthly income (excluding business owners) Insurance uptake increases with increased monthly income

Overall levels of uptake of insurance products – Businesses – by stage of business No significant relationship between age of business and insurance uptake

Overall levels of uptake of insurance products – Businesses – by size of business Micro enterprises less likely to be insured than small enterprises

Overall levels of uptake of insurance products – Businesses – by annual turnover of business Insurance uptake increases with increased business turnover

Overall levels of uptake of insurance products – Businesses – by registration status Registered businesses significantly more likely than unregistered businesses to have insurance

Overall levels of uptake of insurance products – MSMEs – by type of business Service providers more likely than traders to have insurance

Overall levels of uptake of insurance products – Agribusinesses – by type of business Agroprocessors significantly more likely than other agribusinesses to have insurance

Type of insurance products held by the insured (adults 18 years or older excl business owners) * Insurance product uptake too low amongst businesses to do break-down

Barriers to Uptake of Insurance Products

Barriers to insurance uptake – Adults 18 years or older (excluding business owners)

Barriers to insurance uptake – MSMEs

Barriers to insurance uptake – Top 25% of agribusinesses

Barriers to insurance uptake – Comparing consumers and business owners Although barriers to insurance uptake has various dimensions, most reasons given by uninsured individuals and business owners for not having insurance, could be related to:  Lack of the understanding of the benefits/value of insurance  Lack of an understanding of how insurance works, what products are available, and how and where to obtain insurance  Lack of trust in insurance and/or insurance companies  Perceptions around the affordability of insurance

Barriers to insurance uptake – Comparing consumers and business owners

Barriers to insurance uptake – Adults 18 years or older, 2009 (excl) – Rural/Urban

Barriers to insurance uptake – Business owners – Rural/Urban Top 25 % MSMEsAll MSMEs Top 25 % Agribusinesses

Barriers to insurance uptake – Attitude to insurance – Uninsured adults 18 years or older 2009 Individuals seem to understand the concept of insurance. A lack of understanding of what is available and the benefits thereof, impacts on trust and perceptions of affordability.

Determinants of Uptake of Insurance Products: Risks with Financial Impact

Risks with financial impact – Adults 18 years or older 2009

Risks with financial impact – MSMEs

Risks with financial impact – Top 25% of agribusinesses

Risks with financial impact – Adults 18 years or older 2009 – Rural/urban

Risks with financial impact – MSMEs – Rural/urban

Risks with financial impact – Top 25% of agribusinesses – Rural/urban

Risks with financial impact – MSMEs per type of business

Risks with financial impact – Top 25% of agribusinesses per type of agribusiness

Determinants of Uptake of Insurance Products: Coping with Risk Events

Coping with risk events – Adults 18 years or older 2009

Coping with risk events – MSMEs

Coping with risk events – Probed claimed risk mitigation strategies – Top 25% of agribusinesses

Coping with risk events – Actual coping mechanisms applied when faced with risk events – Top 25% of agribusinesses

Coping with risk events – Comparing consumers and business owners Although individuals have many ways of coping with risks with a financial impact, coping mechanisms could broadly by categorised as follows:  Insurance  Self-protection through savings and/or investment  Self-protection through selling assets  Borrowing

Coping with risk events – Comparing consumers and business owners

Coping with risk events – Comparing rural/urban – Adults 2009

Coping with risk events – Comparing rural/urban – MSMEs

Coping with risk events – Comparing rural/urban – Top 25% of MSMEs

Coping with risk events – Comparing rural/urban – Top 25% of agribusinesses

Coping with risk events – Comparing male/female – Adults 2009

Coping with risk events – Comparing age groups – Adults 2009

Coping with risk events – Comparing income generating activities – Adults 2009

Coping with risk events – Adults 2009 by total monthly income Savings trend Selling asset trend Borrowing trend Insurance trend

Coping with risk events – Businesses by size All MSMEs Top 25% MSMEs Top 25% agribusinesses

Coping with risk events – Comparing types of MSMEs All MSMEs Top 25% MSMEs

Coping with risk events – Comparing types of agribusinesses – Top 25% of agribusinesses

Coping with risk events – Comparing businesses by annual turnover All MSMEs Top 25% MSMEs Top 25% agribusinesses Annual turnover Savings trend Selling asset trend Borrowing trend % businesses using coping mech Annual turnover

Determinants of Uptake of Insurance Products: Coping Strategies – Multiple income sources, Saving, Borrowing Group membership

Is the way individuals and business owners cope when risks events occur proactive or reactive? The way individuals and business owners respond to questions regarding the way they cope financially when risk events occur often creates the perception that they lack coping strategies. The FinScope, MSME and AgFiMS data however provides evidence to the contrary.  Most adults have multiple income sources to mitigate risk  Savings behaviour is, to a large extent, driven by the need to mitigate risk  Membership of groups is, to a large extent, driven by the need to have quick access to money (either in the form of savings or loans) in times of financial difficulty

Coping strategies – Multiple sources of income

Coping strategies – Saving – Adults 2009 Savings behaviour of most savers is driven by a need to mitigate risk

Coping strategies – Borrowing – Adults 2009 Borrowing behaviour is driven by a need to mitigate risk

Coping strategies – Multiple sources of income Group membership is a risk mitigation strategy for most members

Determinants of Uptake of Insurance Products: Yakini Capacities Assessment Model applied to identify attributes associated with being insured: Individual/business owner attributes Household/business attributes Community/external factors/attributes Title over

Significant determinants of insurance uptake Determinants of insurance uptake Individual/ Business owner characteristics Household/ Business context Community context Household or business owns insurable assets: Adults – Colour TV, DVD player, car/other vehicle, computer Businesses – buildings, machinery/equipment, vehicles Agribusinesses – tractors Individual has a regular income (either as main or secondary source of income) and has Achieved higher levels of education Based on the FinScope consumer, FinScope MSME and the AgFiMS data, individuals or businesses with insurance have the following characteristics that distinguish them from those without insurance

New Opportunities for Insurance?

New insurance opportunities? From this analysis, the following main conclusions can be drawn:  Those who are insured have traditional insurance products  They are distinguished from the uninsured by the following attributes:  They are from a household owning insurable assets or they own a business with insurable assets  They have at least one regular source of income  They have achieved at least some level of secondary school education Finding individuals with similar characteristics would therefore represent opportunities for insurance service providers. However, from the analysis it seems clear that this would not necessarily represent a significant market for service providers in Tanzania:  Less than 4% of uninsured adults receive salaries/wages from the formal sector, 13% from the informal sector  Only 14% of uninsured adults have achieved secondary school levels of education  Only 13% of uninsured adults have a colour TV, 7% a DVD player, 1% a computer/laptop, 2% a car  Insignificant proportions of businesses (MSMEs and agribusinesses) own insurable assets

New insurance opportunities? The currently uninsured manage their risks through  Self-insuring by means of saving or investing in assets to sell at a later stage  Borrowing In terms of risks, this analysis has illustrated that the main risks to consider are:  Loss of income through death/illness  Medical expenses  Weather-related risks that affect agricultural activities  Theft To enter the market, insurance providers will have to demonstrate the benefit of insurance above the current coping strategies being used. They are however faced with the challenge of insuring “traditional risks” at a premium that is cheaper and in a manner that is more attractive/beneficial to consumers than current coping strategies being used. The challenge lies in designing new insurance products that address the risks faced by individuals and business owners  in a manner that is cheaper to the consumer than borrowing or self-insuring, and  that would mitigate the financial impact of the risk,even if only partially Profits for service providers with such an approach would be volume driven

New insurance opportunities? The insurance challenge does not lie in finding a channel /points of distribution but rather in the design of an appropriate affordable product  Although ownership of mobile phones was still relatively low in 2009, more than 70% of adults had access to a mobile phone  70% of agribusiness owners have access to a mobile phone  74% of MSME business owners have access to a mobile phone  More than 90% of consumers are within an hour’s walking distance from a market