Barbara Magnoni

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<a href="http://cfi-blog.org/category/financial-inclusion-2020/" target="_blank" rel="attachment noopener wp-att-8901"><img class="alignright wp-image-8901" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/12/blogseries.jpg" alt="Financial Inclusion 2020 Blog Series banner image" width="300" /></a>&gt; Posted by Barbara Magnoni, President, EA Consultants and Client Value Project Manager, MicroInsurance Centre MicroInsurance Learning and Knowledge (MILK) Project

The <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/financial-inclusion-2020" target="_blank" rel="noopener">Financial Inclusion 2020</a> campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. This blog series spotlights financial inclusion efforts around the globe, shares insights from the FI2020 consultative process, and highlights findings from “Mapping the Invisible Market.”

Is there a business case for microinsurance? Does it provide value for clients?

We began the <a href="http://www.microinsurancecentre.org/milk-project.html" target="_blank" rel="noopener">MILK Project</a> by mapping existing research on these two questions. We were surprised to see that <a href="http://www.microinsurancecentre.org/milk-project/milk-docs/doc_details/811-do-clients-get-value-from-microinsurance-a-systematic-review-of-recent-and-current-research.html" target="_blank" rel="noopener">very few studies were on life microinsurance</a>, particularly because life products are the most commonly sold type of microinsurance. <a href="http://www.microinsurancecentre.org/resources/documents/doc_details/69-reducing-vulnerability-the-demand-for-microinsurance.html" target="_blank" rel="noopener">A well-known study</a> also suggests that the poor are very concerned about the financial risks of death, nearly as much as they are about health events.

Given that life microinsurance is both common and potentially greatly needed, why was there so little research on this topic? Life insurance is difficult to study because in any group, only a few deaths will occur in a given span of time, making it a very infrequent and random event. The policy world has also, perhaps, been skeptical about its value. Life microinsurance lacks the glamour of the promise of microcredit and the clear social good of savings. While health and agricultural microinsurance products are often developed with donor support as part of larger investments in health services, infrastructure, or agricultural inputs, life microinsurance is more often commercially driven.

We too began our research on the value for clients of life microinsurance with healthy skepticism, asking whether there really is financial value for clients from these products and if so, whether clients perceive them as valuable. Two years into our project, our results are promising, and even to ourselves, surprising.

[caption id="attachment_10707" align="alignright" width="260"]<a href="http://www.microinsurancecentre.org/milk-project/milk-docs/doc_details/840-milk-brief-8-qdoing-the-mathq-cashless-funeral-microinsurance-in-colombia.html" target="_blank" rel="attachment noopener wp-att-10707"><img class=" wp-image-10707 " style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/04/graph1.png" alt="" width="260" /></a> MAPFRE Colombia Funeral Microinsurance: Client Value Study[/caption]

<a href="http://www.microinsurancecentre.org/milk-project/milk-docs/doc_details/840-milk-brief-8-qdoing-the-mathq-cashless-funeral-microinsurance-in-colombia.html" target="_blank" rel="noopener"> Our first study</a> analyzed a voluntary, cashless funeral product offered by MAPFRE in Colombia, which upon a client’s death, provides an in-kind benefit: a standard funeral package through one of several affiliated funeral homes. Using MILK’s “<a href="http://www.microinsurancecentre.org/milk-project/milk-docs/doc_details/842-milk-brief-9-what-is-qclient-mathq.html" target="_blank" rel="noopener">Client Math</a>” methodology, we interviewed family members of insured and uninsured people who had recently died to gain insight into what the costs associated with the death were, how they were financed, and the role that the insurance product played. We found that the coverage was critical to helping families cope with the cost of the death. It covered most of their financing needs and allowed them to avoid relying on burdensome strategies such as reducing consumption or depleting savings. This was largely due to the fact that their financing need ($520) was far lower than that of the uninsured ($2,500) due to the in-kind benefit beneficiaries could access immediately. Additionally, the support of a family assistant in navigating paperwork and other requirements added value by reducing days of missed work to plan the funeral and by making the process of planning and paying for the funeral more seamless.

Similarly, our <a href="http://www.microinsurancecentre.org/milk-project/milk-docs/doc_details/938-milk-brief-16-qdoing-the-mathq-life-microinsurance-in-mexico.html" target="_blank" rel="noopener">“Client Math” study</a> of a cash product offered to clients of Banco Compartamos in Mexico found encouraging evidence of value. Beneficiaries were able to borrow from friends and family knowing that an insurance payout was forthcoming, while the uninsured turned to more costly formal loans and reduced savings to cover the cost of the funeral. This finding is mirrored in our <a href="http://www.microinsurancecentre.org/milk-project/milk-docs/doc_details/877-milk-brief-13-qdoing-the-mathq-funeral-and-life-microinsurance-in-the-philippines.html" target="_blank" rel="noopener">study of a funeral and life microinsurance product</a> in the Philippines. In this case, the cover did not actually provide benefits in the short term due to long claims payment periods. Thus beneficiaries still had to strategize sourcing of funds as if they had no funeral insurance. However, even when the insurance claims were paid late they helped some beneficiaries get back on their feet after the loss of a breadwinner by allowing them to invest proceeds in a business or cover short-term household expenses. Further, the insurance does not seem to have created an incentive to spend more on the funeral than beneficiaries otherwise would have (the “bigger box” phenomenon that some skeptics raise).

These studies provide encouraging evidence of value, suggesting that life microinsurance can play an important role in alleviating the financial strain from a death. But what of all those people who do not “use” the insurance because, thankfully, they don’t die? Do they get any value? To address this question, we conducted a <a href="http://www.microinsurancecentre.org/milk-project/milk-docs/doc_details/939-milk-rct-protecting-those-left-behind-an-experimental-study-of-life-microinsurance-purchase-decisions-of-compartamos-bancos-borrowers-in-mexico.html" target="_blank" rel="noopener">randomized control trial in Mexico</a> with Banco Compartamos clients to see whether clients themselves perceived value in this product. A randomly chosen group of clients was told that they would no longer receive a free basic insurance package, while another randomly selected group kept its free coverage. When clients lost access to the free insurance, many compensated by voluntarily purchasing coverage. In focus groups, they emphasized the peace of mind that insurance brings. Clients’ reaction to losing free coverage is a powerful indication that they see value in the product, despite the fact that most are unlikely to “use” it. Of course, Compartamos clients were familiar with this product from prior loan cycles when it was offered for free. Many were aware of the product’s reliability, and had seen examples of claims being paid and used, which helped to develop understanding and trust of the product. In future studies, we will start to analyze the process of gaining familiarity with insurance, and to what extent clients become active buyers of insurance products as they gain familiarity with them.

So far, our work suggests that if insurers keep their end of the bargain, life microinsurance can contribute to both their perceived and actual financial security. We encourage you to look through <a href="http://www.microinsurancecentre.org/milk-project/milk-docs.html" target="_blank" rel="noopener">our work</a> and offer your thoughts on our findings to date.

For more information on Financial Inclusion 2020, <a href="http://bit.ly/FI2020signup" target="_blank" rel="noopener">sign up for campaign updates</a>.

<img class="alignleft wp-image-10711" style="border: 0" src="http://centerforfinancialinclusionblog.files.wordpress.com/2013/04/barbara2_resize.jpg?w=150" alt="" width="125" />Barbara Magnoni is President of EA Consultants and Client Value Project Manager for the MicroInsurance Centre’s MicroInsurance Learning and Knowledge (MILK) Project.

Have you read?

<a href="http://cfi-blog.org/2013/03/21/microinsurance-innovations-whats-next/" target="_blank" rel="noopener">Microinsurance Innovations: What's Next?</a>

<a href="http://cfi-blog.org/2012/12/17/what-is-the-world-searching-for/" target="_blank" rel="noopener">What is the World Searching for?</a>

<a href="http://cfi-blog.org/2012/11/21/microinsurance-on-the-road-map-to-financial-inclusion/" target="_blank" rel="noopener">Microinsurance on the Roadmap to Financial Inclusion</a>

New Insights From the Field on the Value of Life Microinsurance

&gt; Posted by Barbara Magnoni, President of EA Consultants
This post is part of the Center for Financial Inclusion’s <a href="http://centerforfinancialinclusionblog.wordpress.com/tag/expert-exchange-blog-series/" target="_blank" rel="noopener">Expert Exchange: Building A Movement Toward Financial Inclusion by 2020</a>, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at ACCION International.
<a href="http://centerforfinancialinclusionblog.wordpress.com/tag/expert-exchange-blog-series/" target="_blank" rel="noopener"><img class="alignright size-full wp-image-5211" title="Expert Exchange Logo" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/02/expert-exchange-logo.jpg" alt="" width="300" height="75" /></a>When I was first asked to reflect on the Center for Financial Inclusion’s <a href="http://centerforfinancialinclusionblog.files.wordpress.com/2011/07/opportunities-and-obstacles-to-financial-inclusion_110708_final.pdf" target="_blank" rel="noopener">Opportunities and Obstacles paper</a>, I immediately began thinking of the practical implications for providers of turning the survey responses into actions.
The diverse list of opportunities and obstacles that were highlighted in the survey shows just how dynamic the process of action toward financial inclusion must be. 
Different types of entities, in different locations, have different priorities. Because institutions can’t invest in everything, they need to make some choices from the list of priorities mentioned in the survey, as these priorities are not always compatible.  For example, branchless banking is certainly an important trend, and in Latin America, many institutions are looking at these models. Yet those who go the route of branchless banking will likely have a hard time promoting real financial education (another important opportunity mentioned in the paper), as their organizational structure will be increasingly decentralized.
The survey results suggest to me that there could be a further polarization of different types of institutions providing financial services to the poor in Latin America. I suspect that more formal institutions, especially those with sufficient scale to justify the investment, will focus on issues of cost cutting needed to maintain shareholder value in increasingly competitive markets. In Latin America, more and more banks and MFIs are looking at the agent banking model because lines in branches are getting longer and more costly to manage. The more products they offer, the worse these lines can be. One example is the recent initiative to scale up <a href="http://www.bancoestado.cl/DBCA98A37C4946D2A8DD4DD9E8D5EFAC/958B638B0E5442ACBAEC4D2E1D67FC9B/958B638B0E5442ACBAEC4D2E1D67FC9B.asp" target="_blank" rel="noopener">Banco Estado’s Caja Vecina</a> in Chile. These points of sale are typically small grocery stores that offer common debit and deposit transactions, freeing up lines at bank branches. Today, there are 9,000 points of sale in Chile and the bank expects this to grow significantly in the near future.
The pressure from larger MFIs and banks offering cheaper and more efficient financial services will keep smaller and more socially focused MFIs on their toes.  They will have to compete for clients with these institutions, most likely by identifying and targeting their market niche more precisely and by offering more customized and personalized services.  These institutions are more inclined to follow a less decentralized model, one that keeps them closer to their clients. As a result, these institutions are better positioned to address client demand more holistically, understanding clients better, making better products for the poor, and promoting financial as well as other types of behavior changing education.
As we work to make the financial inclusion action agenda possible, we should ensure that there is segmentation rather than fragmentation in the market.  Some would call this a financial inclusion “ecosystem,” in which each of our core competencies and incentive structures are able to coexist and thrive, even in a competitive environment.  Taking this bold vision of full financial inclusion from opinions to action will require engaging a diverse range of providers and allowing each to play to their own strengths.
For more information, <a href="http://bit.ly/FI2020signup">sign up for updates</a> from the Financial Inclusion 2020 campaign.
<img class="alignleft wp-image-5271" title="BarbaraMagnoni" src="http://centerforfinancialinclusionblog.files.wordpress.com/2012/02/barbaramagnoni.png?w=273" alt="" width="126" height="138" />Ms. Magnoni is the President of EA Consultants. An international development advisor with over 15 years of international finance and development experience, she has an extensive background in financial market financing and investments, having worked on Wall Street for seven years where she worked for Goldman, Sachs, Chase and BBVA as a fixed income research strategist, covering external and local financial and currency markets in Latin America. Since 2000 she has been working in economic development programs with a strong focus in Lain America. 
Have You Read?
<a href="http://centerforfinancialinclusionblog.wordpress.com/2012/01/31/its-time-to-expand-the-circle/">It's Time to Expand the Circle</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2012/02/14/who-needs-to-be-educated-for-us-to-achieve-financial-inclusion/">Who Needs Financial Education?</a>
<a href="http://centerforfinancialinclusionblog.wordpress.com/2012/01/27/expert-exchange-building-a-movement-toward-financial-inclusion-by-2020/">Expert Exchange: Building a Movement Toward Financial Inclusion by 2020</a>

Barbara Magnoni

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