1. Brokers and Agents in Microinsurance: Opportunities and Challenges World Federation of Insurance Intermediaries Washington, DC 10 March 2009 Michael J. McCord President, MicroInsurance Centre mjmccord@microinsurancecentre.org www.microinsurancecentre.org

2. A comprehensive landscape study of low-income people in the world’s 100 poorest countries found that only 3% (78m) of the low-income population are covered by formal microinsurance. (data from mid-2006). Estimate 125 million today. Potential market might be 3 Billion. Microinsurance Availability

3. “Microinsurance” Risk-pooling products that are designed to be appropriate for the low-income market in relation to cost, terms, coverage, and delivery mechanisms WHAT IS MICROINSURANCE?

4. Conventional and Micro Insurance Conventional InsuranceMicroinsurance Delivery Channels Sold by licensed agents or brokers to wealth, middle class, or companies that typically understand insurance Often sold by unlicensed non-traditional agents to low-income persons, preferably in groups requiring significant consumer education Control efficiencies Screening requirements may include a medical examination, or other tests Death certificates confirming event If there are any screening requirements, they are very limited to limit costs Confirmation by local leaders Premiums Typically regular annual, quarterly, monthly. Based on age or other specific risk characteristics, and collect regularly Frequent or irregular premium payments. Group pricing with links to other services. Different risk structures. Policies Complex policy document, many exclusions, usually annual terms Simple language, few to no exclusions, terms appropriate to market Claims Claims process for large sums insured may be quite difficult Claims process for small sums insured is simple ye still controls fraud

5. Microinsurance types Life Insurance Credit Life Funeral Endowments “Transition funds” Pensions Education Life Disability Dismemberment Partial Permanent Temporary Total Credit Disability Hospitalisation Out-patient Health Dental Optical Surgical Dread Disease Property Fire Theft Rainfall Floods Livestock Agriculture Prices Comprehensive QUALITY?????

6. Factors in Microinsurance Purchases 6 Perceptions of Insurance Understanding Insurance Concepts Product / Demand Match Easy Payment Mechanism Cost of Coverage Available Income Cost and Frequency Purchase Decision Making Requires Education  Knowledge  Appreciation Requires Appropriate product design

7. Relationships, in brief Insurers Delivery channels Misunderstanding ? ? Sometimes good products, but often -Products poorly designed for the market -Inappropriate procedures -Weak servicing -Inefficient systems -Poorly trained staff and clients -Ineffective marketing Brokers might improve this situation

8. MI Covered Lives by Delivery Channel Delivery Channel Type Covered Lives Agents: Microinsurance or Other7,569,773 Brokers: Microinsurance or Other 292,947 CBOs and other Groups 25,645,596 Employer Groups 181,192 Government and Parastatal 11,815,690 Mutuals 13,800,214 Other Financial Services (e.g. MFIs) 17,001,644 Retailers of Other Service Providers including Funeral Parlors 1,755,682 Not Specified 436,766 Total 78,499,503

9. Distribution by Product line ChannelClassName Accident & Disability Health Life Property & Index Total Agents: MI or Other1,096,418 108,9034,437,5142,099,182 7,742,017 Brokers: MI or Other18,827273,904 292,730 CBOs and other Groups15,193,68910,913,85821,031,06411,431,763 58,570,375 Employer Groups 2,150178,283 1,192 150 181,775 Government and Parastatal 9,738,403 9,563,6679,613,56411,216,056 40,131,690 Mutuals9,539,907 11,090,39912,357,1729,438,867 42,426,345 Other Financial Services (e.g. MFIs) 5,228,1803,116,28914,343,6731,682,222 24,370,364 Retailers 89,760152,9241,303,397289,795 1,835,876 Not specified 53,543378,050 431,593 Total40,888,508 35,196,692 63,739,530 36,158,034 175,982,764

10. Madison, Zambia Tata-AIG, IndiaAIG Uganda Insurer typeCommercial Years 4 (2003)3 (total to 6/2005)7 (2004) Delivery PartnersOwn agentsPartners Products Credit life, funeral Term life and life savings linked to ins GPA, Fire, Last expense (family) # insured 31,71210,0731.6 million Claims ratio 22% 191% (break even anticipated in 5 years) 32% Expense ratio N/A41% Profit/Surplus N/A(91%)27% Total annual MI premiums (15%) USD 150,000 ( ≈0.5%) USD 122,000 (over three years) (?%) USD 790,000

11. Tuw Skok, PolandMalawi Union of Savings and credit Coops Insurer typeMutual owned by Credit Unions (Poland) Mutual (Malawi) Years operational7 years (2003)>4 (2003) ProductsCredit life, homeowners, AD&D # Clients924,20056,000 Claims ratio56%40% Expense ratio32%15% Profit/Surplus12%45% ROE15%6.5%

12. Sources Michael J. McCord. AIG Uganda - CGAP Working Group on Microinsurance, Good and Bad Practices Case Study No. 9. April 2005. James Roth and Vijay Athreye. Tata – AIG Life Insurance Company Ltd. - CGAP Working Group on Microinsurance, Good and Bad Practices Case Study No. 14. September 2005 Lemmy Manje. Madison Insurance Zambia- CGAP Working Group on Microinsurance, Good and Bad Practices Case Study No. 10. May 2005 Sven Enarsson and Kjell Wiren. MUSCCO: Malawi Union of Savings and Credit Cooperatives: Good and Bad Practices Case Study No. 8. March 2005 Craig Churchill and Terry Pepler. Tuw Skok, Poland: Good and Bad Practices Case Study No. 2. May 2004

13. Microinsurance Brokers – examples 1 Micro Insurance Agency (MicroEnsure) – Traditional brokerage activity focused on low income – Primarily work through MFIs – Uganda, Tanzania, Ghana, India, and the Philippines – “Break even in <1 year” – http://www.microinsuranceagency.com/index.html http://www.microinsuranceagency.com/index.html Planet Guarantee – Numerous francophone countries – Technical assistance provision and brokerage – http://www.planetfinancegroup.org/EN/pop_planet_garantee. php http://www.planetfinancegroup.org/EN/pop_planet_garantee. php

14. Brokers in microinsurance - examples SANTAM (South Africa) broker with runners – Recent variation on broker model – Sell new low income household structure and content insurance – Brokers employ “runners” who sell the product but not registered to provide advice – Advice provided by broker or supervisor. Supervisor for every 5 runners. – Premiums collected by debit order. No option to pay premium in cash. – Free “Call me” for SMS used for call centre access Mexico – Insurers generally use brokers for all business SABTAM source: Jeremy Leach, Hollard Insurance

15. Reinsurance Brokers Guy Carpenter – – Reinsurance intermediary for microinsurance – ILO Microinsurance Innovation Facility

16. Agents in microinsurance Traditional agents – Gemini Life Insurance (Ghana) – AIG Uganda (as intermediary) Micro-agents – Delta Life (Bangladesh) – Tata-AIG (India) Unlicensed agents – SurAmericana (Colombia) – Allianz (Indonesia)

17. Regulations - examples India (2005) – In addition to an insurance agent or corporate agent or broker licensed under the Act, … as the case may be, micro-insurance products may be distributed to the micro-insurance agents Peru (2007) – “The commercialization of microinsurance can be undertaken by direct sale to the insured, through the intermediation of insurance brokers or through the signing of commercialization contracts Bolivia (2009?) – “Bans” brokers in microinsurance (draft regulations)

18. Issues in Regulation and Supervision of Microinsurance (IAIS) Alternative delivery channels: Traditional brokers/ agents typically do not want to sell microinsurance with its relatively small premiums (and thus small commissions). Thus, many microinsurance delivery channels are unlicensed and unregulated agents. Often the regulator allows the insurer to take on the risk of agents so may not need to be directly regulated. Intermediaries such as agents and brokers are also important actors at the micro level. These entities need to be strong, capable and responsive to the particular needs of low- income households and their service providers in order to contribute effectively to building an inclusive financial system.

19. Strategies for Brokers in Microinsurance Assess potential role and profitability – Is this really a priority for brokers Develop (buy) low-income market expertise – Someone from MFIs or other type distributor Identify demand – Risk managements gaps Identify potential market conduits – MFIs ( easier to start) – Others – retailers, utilities, cell phone operators, churches

20. Opportunities Microinsurance Innovation Facility – Innovation grants – Technical assistance – Research Micro Insurance Network – Leaders forum – Sub groups – Newsletter 5 TH International Microinsurance Conference – Dakar, Senegal – 3-5 November 2009

21. 21 The MicroInsurance Centre “Developing partnerships to insure the world’s poor” www.MicroInsuranceCentre.org mjmccord@MicroInsuranceCentre.org

22. “Insurance” “ Covers an individual / company / household for some or all of a financial loss that is linked to an unpredictable event or risk, via risk pooling and the payment of a premium ”

23. Models of Microinsurance Delivery Community-Based Model (ILO STEP) – Owned and Managed by Members Mutual Model (TYM and their planned MBA) – Owned by members, professional management Partnership Model (ABIC and VBARD) – Very limited risk to MFI, administrative burden limited Also: full service insurer, provider, social security models, new microinsurance brokerage model KEY ISSUE = PLACING RISK WHERE IT IS BEST MANAGED

24. Knowledge Gap Insurers Financial institutions (especially MFIs) Other delivery channels BrokersHaze of misunderstanding