FEIRB Microinsurance: 43845 What Can Donors Do? Poor people in developing countries enjoy few safeguards against the numerous perils of life--illness or injury, natural disasters, and loss of property. Microinsurance is growing in popularity among donors as one means of helping the poor manage risks and reduce their vulnerability.1 This Brief addresses how donors can effectively support microinsurance. Governments in developing countries are often implementing partners. Some funders, like the Aga unable to provide adequate social protection for their Khan Agency for Microfinance, have recruited full-time poorer citizens. At the same time, formal insurers in experts from leading insurance companies. many markets do not see low-income people as viable clients. (However, there has been recent Determining when and how to deploy the appropriate progress with some simple products, such as life instrument--from technical assistance to grants, loans, insurance.) equity, guarantees, and policy support--requires good knowledge of market conditions. In many instances, HOW CAN DONORS EFFECTIVELY SUPPORT relatively small amounts of funding provided over longer MICROINSURANCE? periods are needed. In markets where commercial insurers show interest, donors should focus on brokering In most countries, reaching scale and providing real relationships with organizations close to target clients. value to clients will likely require donor involvement in Donors can also support public goods like research and the medium term. Donors will need appropriate consumer education. However, in the numerous markets expertise and resources to engage effectively in where formal insurers are not yet willing to step in, microinsurance because it is relatively new, complex, donor funding can help build the institutional capacity to and risky. provide insurance services. The Bill and Melinda Gates Foundation recently awarded a grant to ILO to create Donors have diverse reasons for wanting to support the Microinsurance Innovation Facility, which will provide microinsurance. Even within the same agency, different competitive innovation grants to stimulate ideas and units may have varying views on how subsidies can be involve new players in providing insurance services. used best, how much clients should pay for insurance services, and what roles the government and the There is still no consensus on what constitutes good private sector should play. Strategic clarity on the performance for microinsurance programming. In part, reasons for engaging in microinsurance affects how a this is simply because microinsurance is a relatively new donor's objectives are set, how expertise is recruited, area. To improve accountability for results, donors and what type of monitoring is implemented. should agree up front on desired outcomes and performance. The CGAP Working Group on Few donor agencies have insurance expertise. Agencies Microinsurance's subgroup on performance indicators that make significant investments in microinsurance is leading efforts to define industrywide reporting should have access to staff with appropriate technical ratios and, ultimately, to establish benchmarks.2 This skills. Donors can either invest in in-house expertise or work is essential to improve performance reporting ensure program staff have enough "insurance literacy" and will help shape donors' performance agreements to outsource intelligently and select the best with partners. 1. The term "donors" here refers to bilateral and multilateral agencies, regional development banks, foundations, socially responsible investors, and other organizations that fund microinsurance or design and manage microinsurance programs. April 2008 2 Microinsurance is complex and has multifaceted Comunitaria del Peru (ACP), the holding company objectives. When microinsurance programs originate of MiBanco, an MFI that offers insurance products, from different departments within funding agencies and Secura, an insurance brokerage firm. In addition (health, agriculture, financial sector), opportunities for to MiBanco, ACP can partner with other MFIs and learning and sharing ideas can be missed. Good distribution channels, thus increasing its market knowledge management is crucial for donors to learn share.3 from their own and others' experiences. Since 2002, · Carefully facilitate the entry of commercial insurers the CGAP Working Group on Microinsurance has to lower income markets, but do not subsidize provided a platform for donors, insurers, policy something they would have done on their own. Also, makers, and technical service providers to share provide incentives for insurers to offer more complex knowledge, document good practices, and coordinate products, such as health or crop insurance, that with each other. It now has more than 80 members. provide greater value for clients. · Identify and help develop alternative delivery WHAT CAN DONORS DO TO EXPAND channels that will allow insurance providers to reach POOR PEOPLE'S ACCESS TO INSURANCE scale and efficiency. Besides financial service SERVICES? providers, like MFIs and credit unions, donors can help broker partnerships with other intermediaries, There are several ways donors can support including retail stores, cell phone networks, and microinsurance at each level of the market. However, associations in the informal sector. Donors can help not every donor can, or should, work on all levels. prepare delivery channels to negotiate partnership terms with insurance companies. Micro level: Support existing · Invest in market research that explores demand for retail microinsurance providers a range of financial services, including insurance. For example, FinScope household surveys, developed The supply chain for insurance can be categorized by by FinMark Trust in South Africa, have been used to function, in terms of risk carrier, administrator, and demonstrate the market for insurance services and, delivery channel. Often these tasks are carried out by as an advocacy tool, to inform regulators. Before separate organizations where the risk is carried by an funding a microinsurance program, donors should insurer; the product is distributed by an "agent," which ensure the implementer has assessed client demand could be a microfinance institution (MFI), cooperative, and conducted appropriate market research. labor union, nongovernmental organization (NGO), · Help build the capacity of institutions that provide and so forth; and a third-party administrator manages microinsurance. Make technical assistance available the claims process. Donor involvement at the retail to retail providers for feasibility studies, product level can occur along a continuum of support. Donors development, business planning, operations, pilot should do the following: roll-outs, marketing, and so forth. · Prioritize work through formal insurers or existing microinsurance institutions. Donors should not encourage MFIs to bear the risk of providing insurance, because few MFIs have the necessary expertise. IFC, for example, invested in ACCION 2. For a complete list of indicators, see CGAP Working Group on Microinsurance (2006a). 3. ACP's insurance subsidiary, Protecta, is expected to begin operations at the end of 2007. 3 Macro level: Promote a Brokerage Networks: An Innovative supportive policy environment Approach to Achieving Efficiency and Scale Only donors with the appropriate technical skills The Micro Insurance Agency (MIA), a fully owned (including staff in the field), good retail-level subsidiary of Opportunity International, is an insur- knowledge, strong influencing capacity, and the trust ance brokerage network. Established in 2005 with of governments should engage at the macro level. seed capital from donors, MIA provides technical assistance to insurance companies to customize · Donors have an important role to play in products for low-income consumers; brokers part- safeguarding consumer interests. They can promote nerships with a variety of distribution channels, consumer protection, including supporting client including MFIs, NGOs, retailers, and mutuals; education and awareness building; fostering greater and offers efficient back office administration transparency in insurance premiums, coverage, and support to distribution channels. MIA serves over claims procedures; and advocating for streamlined three million clients in 10 countries. consumer recourse mechanisms. · Donors with adequate know-how may advocate for regulatory frameworks and supervision changes to Meso level: Support market overcome specific obstacles and advise regulators infrastructure and public goods on developing appropriate microinsurance frameworks. For example, the Joint IAIS­CGAP The market infrastructure typically develops organically Working Group on Microinsurance is exploring how over time, as providers at the retail level reach a critical IAIS Insurance Core Principles--the foundation for mass and start demanding services. However, as all insurance supervision--are compatible with the markets mature, access to key market infrastructure unique aspects of microinsurance. becomes more important. Donors can help by doing the following: · Provide support to existing or new information clearing houses that track and provide data on the market. · Promote transparency in the sector by developing common reporting formats and performance benchmarks appropriate for different business models and products. · Develop tools to facilitate the work of practitioners, donors, and policy makers, when appropriate. For example, USAID supported the publication of guidelines for market research on the demand for microinsurance (USAID 2006). · Facilitate reinsurance solutions to expand coverage and protect clients; do not directly manage reinsurance for partners. April 2008 RESOURCES CGAP Working Group on Microinsurance. 2006a. "Performance Indicators for Microinsurance Brown, Warren, Colleen Green, and Gordon Lindquist. Practitioners." Washington, D.C.: CGAP Working All CGAP publications are available on the 2000. "A Cautionary Note for Microfinance Institutions Group on Microinsurance. CGAP Web site at and Donors Considering Developing Microinsurance www.cgap.org. Products." Bethesda, Md.: Development Alternatives, ------. 2006b. "The Role of Donors," Chapter 5.1. In Inc. Churchill, Craig, ed. Protecting the Poor: A CGAP 1818 H Street, NW Microinsurance Compendium. Geneva, Switzerland: MSN P3-300 CGAP. Forthcoming. Lessons Learned and ILO. Washington, DC Recommendations for Donors Supporting 20433 USA Microinsurance. Washington, D.C.: CGAP. Microinsurance Focus. www.microinsurance.org Tel: 202-473-9594 Fax: 202-522-3744 ------. 2006. Good Practice Guidelines for Funders USAID. 2006. "Guidelines for Market Research on the of Microfinance. Washington, D.C.: CGAP. Demand for Microinsurance." Washington, D.C.: Email: cgap@worldbank.org USAID. ------. 2005. "Maximizing Aid Effectiveness in © CGAP, 2008 Microfinance." Donor Brief 22. Washington, D.C.: CGAP. ------. 2003. "Microinsurance: A Risk Management Strategy." Donor Brief 16. Washington, D.C.: CGAP. AUTHORS Alexia Latortue and Aude de Montesquiou, with Vanessa Ward.