> Posted by Véronique Faber, Executive Director, Microinsurance Network
Three months ago, Jeremy Leach from Bankable Frontier Associates rightly asked in this same forum: "Microinsurance: Can the Cinderella of Financial Inclusion Join the Global Ball?" This question rang a bell with many practitioners and advocates in this field. Microinsurance is often the last service listed when talking about financial inclusion tools. However, credit, savings, and insurance work more effectively in combination rather than in sequence. In stimulating and maintaining financial inclusion, it is crucial that those with a limited income have a safety net preventing them from falling into poverty when hit by a crisis, catastrophic or lifecycle related, and become more resilient against future risks.
Since Leach’s blog post, the sector has been granted three wishes (by its fairy godmother or perhaps as a result of good common sense). If these wishes are used well, insurance for low-income people will be an integral part of any global financial inclusion strategy from now on.
The first wish came in the form of visibility and awareness raising. The opening panel at the Financial Inclusion 2020 Global Forum had representatives from MetLife and Swiss Re debating how financial inclusion factors like income growth, new technologies, and government prioritization play out in the context of insurance. For the rest of the conference, insurance was on every participant’s mind when thinking about the possibilities of what can be achieved in the next seven years. This is important because insurance is essential for sustainable development and financial inclusion.
The second wish concerns the expansion of data. Financial inclusion studies do not usually look at access to insurance coverage when collecting information about credit, payments, and saving, with the consequence that insurance for low-income people is often missing or under-represented in large data compilations. With the soon-to-be published Asian landscape, a project initiated by Munich Re Foundation, a complete world map of microinsurance comprised of data from the three main regions will provide some valuable information on the current state of microinsurance and consequently also serve as a point of reference for how well we are doing as a sector with expanding coverage to millions of poor people. Allianz has also shared interesting data in recent months about its microinsurance activities in 11 markets. The Microinsurance Network will continue to advocate for insurance indicators and datasets to be included in financial inclusion mapping exercises, which can then also provide a more complete picture of trends and progress made.
At last month's 9th International Microinsurance Conference in Jakarta, the International Labor Organization’s Microinsurance Innovation Facility and MILK, an initiative led by the MicroInsurance Centre, shared initial findings and learnings from last year's case studies into client value and the business case for microinsurance. One of their conclusions is that insurance coverage for the poor reduces the untimely use of other risk coping mechanisms, which when used under wrong circumstances, will have negative consequences, such as the depletion of savings or the taking of additional high-interest loans.
Taken altogether, the studied insurance services provide protection against the financial obligations after a risk event occurs, mainly when complimentary to other financial and non-financial mechanisms. This is especially true for health related events like illnesses and maternity care, where adding preventative measure is crucial, like adding outpatient counselling (Calcutta Kids) or access to low-cost medication (Uplift India). With insurance, clients also seem to benefit from better health care as they would take up more frequent doctor visits and avail themselves of preventative health care measures.
Microinsurance clients were also more ready to invest in new opportunities with higher returns. For example, in Ghana, 24 percent of insured farmers increased their expenditures on fertilizers and 17 percent expanded their area of cultivated land.
The third wish is that the microinsurance sector is moving away from looking at individual products and adopting a more market development approach. Working together to strengthen the whole value chain by linking the different stakeholders will support the development of sustainable markets that can offer better enterprising and employment opportunities. This market approach paradoxically also calls for increased responsibility by national governments at this stage to support development. More experience with public-private-partnerships and the interaction between social protection and microinsurance are now available, and many governments have put financial inclusion on their agendas.
Building infrastructure and institutions, developing capacity and enacting conducive regulation are all essential roles for the public sector to take up, as well as designing long-term mechanisms to support areas that need continuous direct public funding, such as health and agriculture.
The international donor community has traditionally supported public institutions and NGOs, but for emerging markets to develop into sustainable ones and to scale up, national governments need to take ownership of these processes - with the international community staying involved. (For an additional discussion, click here.)
Regulators have already engaged and consolidated their interests through the international supervisory body, the International Association of Insurance Supervisors (IAIS). Just last year, the group joined with the Microinsurance Network in publishing a paper on inclusive insurance markets. This paper provided actual examples for the practical application of principles and standards, and highlighted the need for adaptation to address significant local variance.
The position of microinsurance on the financial inclusion agenda is affirmed, more data and evidence is coming in, and the national governments of emerging countries are becoming more interested. The sector needs to build upon this and provide "easy" information for local governments to make good policy decisions. With these wishes to go on, microinsurance is ready for the ball.
Image credit: The Center for Financial Inclusion
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