What about Microinsurance?

April 10, 2009

In chapter 4 (a draft is coming soon), I survey the landscape of microfinance today. First, I tell the stories of such as people and institutions Muhammad Yunus and John Hatch, Accion International and Bank Dagang Bali, who led the development of the modern microfinance methods. Then I shift to surveying statistically, using the sort of numbers I discussed in my posts about the Microcredit Summit Campaign and postal savings banks.

A gap in the chapter now, which reflects a gap in my own mind: I have nothing about microinsurance. As I write in chapter 2, I am certain that most poor people need insurance more than credit. It’s the financial service I want most, because it protects me and my family against some of life’s biggest financial risks. So the big question about microinsurance is whether it can be mass-produced in a relatively business-like way. Can a product be formulated that poor people will a) buy and b) pay enough for to cover most or all costs of delivery?

Or, to put it more practically, is it being mass-produced in a relatively business-like way today? Where? I’d appreciate pointers to examples. What should I read and who should I talk to?

I’ve found a few helpful documents already:

• Jonathan Morduch, “Micro-insurance: the next revolution?,” 2004.
• Materials from the CGAP Working Group on Microinsurance, 2004?.
• Jim Roth, Michael J. McCord, Dominic Liber, “The Landscape of Microinsurance in the World’s 100 Poorest Countries,” MicroBanking Bulletin, Autumn 2007.

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1. Rachel Strohm Says:
   April 12th, 2009 at 2:41 pm

   There’s an insightful paper comparing the microinsurance schemes of three Bangladeshi MFIs here: http://www.microlinks.org/ev_e.....2=DO_TOPIC. (Short summary: the only MFI that covered the cost of its insurance by itself made enrollment mandatory for its borrowers and deducted fees automatically – problematic from an individual uptake perspective.)

   Another organization in India doing microinsurance is the Self-Employed Women’s Association: http://www.sewainsurance.org/. Rwanda’s also well-known for its government-administered health insurance; just google “rwanda health insurance” for interesting results.

   Also do some googling for crop insurance or weather insurance in the developing world; this is a fascinating subject, albeit a difficult type of program to successfully implement. I haven’t heard of anyone actually pulling it off, but then I studied this a few years ago, so my information could be out of date.

   I hope this helps!

2. Daniel Clarke Says:
   April 14th, 2009 at 5:33 am

   Managing Agricultural Production Risk by the World Bank is a great starter:
   http://www.microfinancegateway.....tail/31309

   A little out of date though. The majority of successful large scale microinsurance schemes seem to be either index or area yield insurance. You may also be interested in:
   http://www.munichre-foundation.....endium.htm

   I’m writing my DPhil (PhD) on microinsurance. With apologies in advance for turning the post around to my specific research, I’m working on a third kind of insurance – group excess of loss insurance, where payments are indemnity based (instead of being based on an index) but the insurer only conducts loss adjustment and makes payments if the group as a whole has suffered a large aggregate group loss. The idea is that you save on the deadweight cost of formally insuring uncertainty idiosyncratic to the group. Another way of putting it is that you are not crowding out informal insurance within the group. Best example of this third type are the self-insurance funds in Mexico described by Ibarra (2004), chapter 18 of Catastrophe Risk and Reinsurance by Gurenko. To the best of my knowledge this is the only indemnity-based voluntary crop insurance scheme that has survived unsubsidised for over ten years in the history of the world…

3. Rod Morris Says:
   April 15th, 2009 at 7:39 am

   The poor, especially in rural areas with little potential for attracting large numbers with a spread of risk is not attractive to good, financially sound and responsible insurance companies. It’s too inefficient, too expensive and offers too much potential for concentration of risk. Further, some of the companies that offer microinsurance make me suspicious of their controls and integrity. While I believe that it would not be particularly easy, I think that one mechanism that I never see anyone talking about is a “self-insurance pool”. It is an efficient mechanism that removes much of the embedded costs of purchasing from an insurance company, i.e. profit loading, loading for taxes, licenses and fees, much of the administrative/overhead expenses, perhaps broker fees if offered through co-ops or tribes. Further, it offers the potential, if seriously committed for the long-term, of stability/consistency of market rather than the whims of the insurance industry. Anyway, there isn’t enough space to explain in detail but the concept, essentially, is that of a group captive type approach.

4. Abhas Jha Says:
   April 21st, 2009 at 8:43 pm

   The Microinsurance Center has published a report on microinsurance in 2007 which looks at microinsurance in 100 countries:

   http://www.microinsurancecentr...../Landscape study paper.pdf

   Weather microinsurance has been successful on a pilot basis in India and Malawi:
   http://siteresources.worldbank.....urance.pdf

   http://siteresources.worldbank....._final.pdf

5. David Roodman Says:
   May 10th, 2009 at 11:33 am

   Thanks to all the commenters for these suggestions. I am following up on them now.

6. Aparna Dalal Says:
   May 12th, 2009 at 3:54 pm

   I recommend resources at the Microinsurance Network – http://www.microinsurancenetwork.org/ and Microfinance Gateway – http://www.microfinancegateway......11.48248/ and talking to folks at ILO’s Microinsurance Innovation Facility – http://www.ilo.org/public/engl.....ifacility/. Its led by Craig Churchill.

   We have started a couple of projects on microinsurance at the Financial Access Initiative and I’m happy to discuss them with you.