Insurance: Turning a challenge into an opportunity

  • Laura HEMRIKA, Credit Suisse / e-MFP
  • Mary Ellen ISKENDERIAN, Women’s World Banking
  • Stewart McCULLOCH, VisionFund International 
  • Mario WILHELM, Swiss Re


Laura HEMRIKA opened this session by asking the audience what are the primary reasons for providing microinsurance to clients. Most popular answers were: Insurance is needed for risk management at client or portfolio level, because MFIs feel clients should have access, followed by clients simply ask for it. According to the audience the biggest challenges with insurance products targeting the base of the pyramid are lack of product understanding by clients and staff, and products’ cost. 

According to Mario WILHELM, global natural catastrophe losses totalled USD 2 trillion over the last decade, with only 30% of that figure being insured. The differences between developed and developing countries are quite significant. For example, the 2011 earthquake in New Zealand led to losses equal to 10% of GDP, but with 80% of those being insured. On the contrary, the 2011 floods in Thailand were equal to 9% of GDP but only 33% of those were insured. Wilhelm highlighted there is currently a great dynamic on multilateral and multinational level for promoting insurance. Rating agencies are now factoring net exposure to disaster risks on the country rating profile. Moreover, during the Paris 2015 UN Climate Change Conference, G7 countries agreed on an initiative on climate risk insurance aiming to increase the number of people covered by this kind of insurance by 400 million by 2020. He added that there is no lack of funding, but lack of projects. 

Wilhelm stressed that in order to turn the challenge into an opportunity we need to understand the risk of both the MFI and the risk of their clients, quantify it, and then develop risk management and insurance strategies. There is also the opportunity to expand loan-book through risk transfer. For example, by protecting the loan portfolio of farmers against agricultural risk we can de-risk the portfolio by transferring it into the insurance market and expand it to agricultural lending. He emphasised that there is huge potential that has not been tapped. Additionally, there is the opportunity to create fee-based revenue stream for the MFIs through insurance. 30% of the insurance revenue in Europe is being generated through the bank channel. The micro­finance sector can do the same to create a non-interest, commission-based revenue for MFIs. 

Mary Ellen ISKENDERIAN talked about Women’s World Banking (WWB) private health microinsurance ‘Caregiver’ in Jordan. The Caregiver product was mandatory for all Microfund for Women (MFW) clients as a condition of access to credit. The microinsurance included pre-existing conditions, limited paperwork, offered a fixed amount of cash per day in hospital, and included maternal health. According to Iskenderian, the success of the product relies on the ‘gap’ coverage. For many clients of microfinance, direct healthcare costs are neither the only nor the largest financial burden. When clients or members of their family are in hospital, they lose income as they need to suspend business operations. This loss of income results in clients selling productive assets for cash. Other indirect healthcare costs include transportation or food items. Iskenderian added that another para­meter for the success and uptake of the microinsurance product was the decision to include maternity coverage as clients felt their needs were understood. 

According to Stewart McCULLOCH, we need to start thinking about insurance differently. There are many great insurance products. The problem is demand. People and the microfinance industry think of insurance as a cost which is usually measured as a percentage of a loan value. VisionFund’s strategy is largely focused on poverty graduation. They believe in improving stability by reducing fragility. He remarked that the best products for smoothing consumption and income volatility are loans and savings. Insurance can be bundled with loans and change the ‘risk-reward’ equation to transform risk and investment decisions. 

McCulloch gave some examples of VisionFund’s products. He talked about the ‘Group Hybrid Multi-Peril Crop Insurance’. In this scheme, farmers receive a loan to make investments in land preparation and crop care. They also receive a yield guarantee insurance based on the group’s expected harvest. The yield is insured by a multi-peril crop insurance. Agronomists are present during germination, flowering and harvest. The success and uptake of this scheme is largely based on the fact that the insurance is not presented as a percentage of a loan, but as an input, exactly like seeds and fertilisers, while the advice by agronomists and the advanced farming techniques are reducing risk. 


Hemrika asked the panel about the main hurdle for scaling microinsurance products. Iskenderian noted that scale is tied to digital delivery but so far digital has meant high premiums or not particularly well thought-through products. There is an opportunity in digital because it can increase cost-effectiveness. Wilhelm agreed that technology is key. For an insurance scheme to be viable and sustainable there is a minimum of 50,000 to 200,000 clients required. Success in the pilot phase only indicates proof of concept. But if you cannot reach that many clients in the scaling-up phase, you will not be able to sustain the program. McCulloch emphasised the importance of educating and making MFIs’ management and staff aware that insurance is not a cost to their organisation or their clients. Iskenderian added that insurers should change the belief that fraud in lower income segments is going to be larger. She noted that evidence has proved otherwise. 

A question addressed Wilhelm’s earlier comment on the minimum client requirement. A 50,000 client minimum is a difficult target for a smaller MFI. McCulloch emphasised there is need for collaborations to reach that level. Insurance has a highly collaborative approach as an industry. The microfinance sector should start discussing collaborative one-product approaches if we want to achieve scalability. Wilhelm added that insurance only works when you have large groups of clients and companies to increase risk pooling and avoid adverse selection and moral hazard. In developed markets, insurance companies aggregate their risks and transfer them on a global level. Why not do that in the microfinance sector as well? A question from the audience was about the importance of profitability in such collaborative approaches. Iskenderian mentioned that if the insurance product is not profitable for the private partner when the subsidy and grant money runs out, it will not be sustainable. 

The discussion then shifted to the importance of making insurance products mandatory to achieve uptake and scalability. According to Iskenderian, all MFW microinsurance products have been bundled together with loans and insurance is mandatory for having access to financial services. She noted that educating clients and MFIs on the importance of insurance is also key. Wilhelm added that insurance products, apart from being affordable, should cover all other costs that are associated with healthcare. Products should not only cover healthcare treatment costs, in fact, in some countries treatment may be free. It is important to cover transportation costs, cost for purchasing food items, or cash to compensate for loss of income due to hospitalisation. Moreover, in countries where microfinance is not very developed, there is need for finding alternative channels of delivery to increase scalability.