New breakthroughs in extending insurance to the poor:
2nd International Microinsurance Conference and book launch a big success
On behalf of Munich Re Foundation, CGAP Working Group on Microinsurance, ILO and FinMark
Microinsurance is an important risk management tool for low-income households and contributes substantially to poverty reduction all over the world. More than 150 experts from 30 countries representing 80 international organisations, non-government organisations, development-aid organisations and the insurance industry attended the 2nd annual Microinsurance Conference 2006, “Making Insurance Work for Africa”, organised by Munich Re Foundation and the CGAP Working Group on Microinsurance. It was held this year in Cape Town with the support of South Africa-based FinMark Trust, from 21 to 23 November 2006.
Participants from 12 African countries shared their views with experts from Europe, North America, India, Pakistan, the Philippines and elsewhere, and discussed the challenges of extending insurance to low-income households. Half of the participants of the conference were from insurance and re-insurance companies—including Old Mutual, Santam, Hollard, AIG, Munich Re and Zurich Financial Services—indicating a burgeoning interest by formal players in reaching under-served markets.
Dirk Reinhard, Vice Chairman of the Munich Re Foundation, said, “The awarding of the Nobel Peace Prize to Mohammed Yunus and the Grameen Bank has helped raise awareness around the world about the critical role of microfinance.” Insurance is an important complement to credit, savings and other financial services to reduce the impact of risks on low-income households. “While microcredit started by providing small loans to self-employed women to expand their businesses, today we recognize that financial services play both productive and protective roles. Properly designed insurance products are extremely important for many low-income households,” Reinhard added.
Making Insurance Work for Africa
The topic of this year’s conference was “Making Insurance Work for Africa,” where governments are least able to provide effective social protection. According to the ILO, only 20 percent of the world’s population has access to adequate social protection, such as health care and pensions, while more than half have no cover whatsoever. “Because in many countries, especially in Africa, social protection is inadequate,” Craig Churchill of the International Labour Organization in Geneva explained, “microinsurance can fill this gap.” Given the limited resources in these countries, “a complimentary approach is needed to use government incentives to leverage the involvement of the private sector.”
Dominic Liber, an actuary from Quindiem in South Africa, presenting the findings from a forthcoming report by the MicroInsurance Centre, said that nearly 80 million low-income people have insurance protection around the world—while that may sound like a lot, in fact less than three percent of low-income households have formal insurance worldwide.
Africa is the continent with the world’s lowest insurance premium to GDP. The FinScope survey shows that only 19 percent of South Africans have some form of formal life insurance, according to Jeremy Leach of FinMark Trust. Usage of short-term policies is even lower with only nine percent—but compared to the rest of the continent, these are impressive results. For example, FinScope Zambia showed less than seven percent of the population had any insurance products. To expand coverage, insurance companies will have to find ways of serving non-traditional markets, such as workers in the informal economy, where the majority of Africans work.
There is demand for coverage by low-income persons and there is a market if the products are properly designed and the distribution channels are effective. In South Africa, for example, there are almost 100,000 community-based burial societies contributing approximately $1bn in “premiums”. These societies allow low-income households to cover the often considerable burial expenses of family members by pooling their resources. The fact that so many people resort to these informal means of managing their risks suggests that the formal insurance industry is not sufficiently addressing their need to manage unexpected expenses.
Innovative schemes—like Microcare’s health insurance in Uganda and the community-based mutuelles santé in West Africa—demonstrate that it is possible to overcome the major challenges of serving this market, which include high distribution costs and the market’s lack of understanding about insurance.
In South Africa, big retailers such as Shoprite, Edcon group, PEP stores and Ellerines are providing microinsurance by collaborating with insurance companies, which is potentially promising. Dirk Reinhard closed the conference saying, “There is a new and strong momentum and a massive opportunity. Microinsurance is not micro - it is a key to secure social protection and to combat poverty.”
The next annual conference will be held in November 2007 in Mumbai, India.
New Milestone Publication
The conference launched a new book, published by ILO, Protecting the Poor: A Microinsurance Compendium. This comprehensive book demonstrates that a clear picture of microinsurance is beginning to emerge – with its challenges as well as with new solutions. As a key source of good and bad practices, this hard cover, 600-page book, based on a review of 40 microinsurance schemes around the world, is a critical and must-have resource for anyone interested in extending insurance to the low-income market.
Craig Churchill, ILO, Chair of the CGAP Working Group on Microinsurance, Phone: +41 22 799 6242 / Churchill@ilo.org
About the organisations
The CGAP Working Group on Microinsurance includes donors, insurers and other interested parties. The Working Group coordinates donor activities as they pertain to the development and proliferation of insurance services to low-income households in developing countries. For more details about the working group, its quarterly newsletters, and to review the case studies, see
FinMark Trust is an independent trust whose business is controlled by trustees from countries in Southern Africa. Its mission is summarised in its slogan: “Making Financial Markets Work for the Poor”. In pursuit of this objective, FinMark Trust aims to promote and support policy and institutional development with the objective of increasing access to financial services by the un- and under-banked in Africa.
The topics that the Munich Re Foundation’s work deals with are as complex and varied as the background and causes of risks. Questions concerning population development, for example, are inseparably linked to the element of water: on the one hand a valuable resource and on the other a risk factor. This is equally true of the link between current issues in the field of environmental and climate change or disaster prevention and poverty relief. The foundation seeks to provide answers to overarching questions from a variety of perspectives in order to find sustainable solutions in the area of risk prevention.
The International Labour Organization is the UN specialized agency which seeks the promotion of social justice and internationally recognized human and labour rights. The ILO formulates international labour standards in the form of Conventions and Recommendations setting minimum standards of basic labour rights: freedom of association, the right to organize, collective bargaining, abolition of forced labour, equality of opportunity and treatment, and other standards regulating conditions across the entire spectrum of work related issues. It promotes the development of independent employers' and workers' organizations. The ILO has a unique tripartite structure with workers and employers participating as equal partners with governments in the work of its governing organs.