Lesson 1 – It is better to layer Insurance on savings rather than credit
Clients don’t want to be in debt all of the time. There are many at ICNW who save and take insurance rather than merely take loans. Over years, the number of savers has been going up considerably. Therefore, linking insurance to savings is very crucial as it provides wider coverage of clients. Capitalization also occurs for the MFI. When layered on credit, MFI will not have coverage of clients who do not have a loan outstanding Products tied to credit cover little more than the outstanding balance – providing little assistance in reducing the financial burden of the surviving family. Therefore, in the long run, clients perceive less value in the insurance product.
Lesson 2 - Insurance Products should service unmet needs rather provide what is possible.
Clients voluntarily pick up products when it satisfies an unmet need which depends a lot on the context. Many unmet needs exist and insurance service providers need to unearth them and understand these and design suitable products and package them in an appropriate fashion - then generating demand will not be a problem. Otherwise, both the product and service provider will be rejected, a trend that may be difficult to reverse as word of mouth is very strong among the kind of target clientele that micro-insurance is targeting. The positive aspect of this experience is something that we have had at ICNW where we have ensured that for health and life insurance, there is a great flexibility in product packaging so that ‘unmet needs’ of clients are met. Therefore, the combinations of product, pricing, delivery etc are chosen by the clients, who then perceive a greater value in the product
.
Lesson 3 – Be Professional and Well Prepared when negotiating with Formal Insurers A good understanding of the situation include past track record helps. For example, every year when ICNW negotiates with the Insurance company, they have accurate data on aspects such as the following:
1) Business turnover offered (both by volume in Rs as well as number of clients) 2) Premiums paid, Payouts made, the ratio of payouts to premiums, generic
associated reasons and all of this by various areas (geographic, business and sectoral areas).
3) Good (realistic) projections of what they can offer further in terms of coverage of clients and premiums with specific targets for each quarter and forthcoming years. ICNW also project the likely risks based on solid historical data and also provide concrete evidence on how our past year projections by and large matched what actually happened. ICNW also point out to companies the various efforts (like promotion of best practices) that they undertake to reduce the risks on an on- going basis
4) Finally, ICNW also insists and gets a good ‘deal’ by citing competitive quotes (without mentioning names)
5) This really helps because then the insurance major knows and understands that ICNW understand our job well.
6) By doing the above and given its very large scale and high diversity in operations, the insurance major sees ICNW as a well informed and primary client
7) Thereby NEGOTIATING becomes easier.
8) Finally, any problems are sorted out and roles and responsibilities are re-defined at the negotiation stage – it is far easier to do it then rather than after the contract is signed.
9) Signing bulk contracts for 3 years has also proved useful sometimes
Key Point
Insurance works on large numbers and diversification of geographic areas/activities. Therefore, while negotiating with insurance companies, MFIs must ensure that the premium is worked out on the basis of all potential clients in their operational areas involved in a wide range of activities. The geographic dispersion of coverage along with multiple activities for bulk (group) cover for a large number of clients will certainly reduce the premiums drastically, than, if insurance, were sought individually by the clients themselves. Additionally, the adoption of best practices should help convince insurance companies and thereby reduce premiums
Lesson 4 – Savings with Withdrawal will be more Effective Against Smaller Losses
Lesson 5 – Do not design a single Insurance Product to cover all risks
Designing insurance coverage against all risks faced by poor households is impractical. The premiums required for sustainable coverage would be beyond the means of most poor families. Savings products may provide more effective risk protection than insurance. If households can withdraw their savings at any time,
they can “self-insure” against any/all unexpected losses up to the amount that they have accumulated in their savings account. Thus for risks that result in smaller losses, voluntary savings may be a better option than insurance.
Lesson 6 - Flexibility in Scheduling Premiums and Coverage
Maximum flexibility in making premium payments must be provided to the clients. Many
insurance policies require premiums to be paid in fixed amounts according to a regular schedule. For low-income households with irregular income flows, such a schedule may
be difficult to maintain. Tieing up the premiums with savings helps facilitate payments as per income flows.
Flexibility in size of coverage is crucial - Flexible insurance policies allow households to choose the amount of coverage they wish to purchase. This has really helped ICNW to penetrate the market better.
Lesson 7 – Mitigate Risk by providing combination loans
ICNW has a large concentration of loans in Agriculture and Animal Husbandry and both these activities carry a high degree of risk in terms of failure of IGAs. Therefore, ICNW has tried to reduce the risk by getting the (clients) to opt for inter-related multi-purpose combination type activities.