POWERING

INNOVATIONS
IN MICROFINANCE
conference on microfinance
July 24 - 25, 2008 * Asian Development Bank, Manila, Philippines
 Edited by Foxit PDF Editor
Copyright (c) by Foxit Software Company, 2004 - 2007
For Evaluation Only.

CONCURRENT WORKSHOP SESSIONS

Friday, July 25, 2008

9:00 a.m. - 10:30 a.m.

MFI Partnership with Insurance Companies in Providing Microinsurance Auditorium Zone C

Microfinance institutions have developed different methods to deliver microinsurance in order to minimize poor household’s
losses due to catastrophic events. These unforeseen events may be due to severe illness, injury, death of a family member,
and natural or manmade disasters. Some MFIs have developed informal insurance schemes while others have established
licensed mutual benefit associations (MBAs). Other MFIs have partnered with commercial insurers to provide insurance to
member-clients. This workshop will explore the mechanics of adopting one delivery model, the partnership with insurance
companies, in providing microinsurance to clients. In addition, the advantages of partnering with insurance companies
will be presented.
Resource speaker: Facilitator: Documenter:
Joseph Alaban Laila Garcia
William H. Martirez, Country Manager RIMANSI Organization for RIMANSI Organization for Asia
Micro Insurance Agency Philippines Asia and the Pacific, Inc. and the Pacific, Inc.
 MFI Partnership with Insurance
Companies in Providing Micro insurance

William H. Martirez
Country Manager, Micro Insurance Agency Philippines
 MICRO FINANCE TRIPOD

MICRO FINANCE

TR
AN TRANSFORMATION

N
Enterprise

O
SF

TI
Micro credit OR

MA
MA
development

OR
TI

SF
ON

AN
TR

Micro insurance

TRANSFORMATION
 Micro credit
z the extension of microloans to the unemployed, to poor
entrepreneurs and to others living in poverty who are not
considered bankable.

Fundamental Principles:

- emphasizes building capacity of a micro entrepreneur

- employment generation
- trust building
- help to the micro entrepreneur on initiation and
during difficult times
 Enterprise Development

z globally regarded as a key driver for sustainable

economic growth.

Purposes:

- Promote entrepreneurship
- Reduce barriers to entry
- Provide support for micro and medium enterprises
- Develope individual skills, or create more “Enterprising People”
- Sustainable Enterprise
Microfinance Institutions (MFIs)

z work directly with the low-income market,

conduct financial transactions, manage
financial controls, and market specialized
financial products

z perfect intermediaries for insurers to reach

the low-income market
What is Micro insurance?

z The insurance business activity of providing

specific insurance products that meet the
needs of the disadvantaged for risk protection
and relief against distress or misfortune (IC
CL 9-2006)

z Providing the poor access to a basket of

insurance, support and services in pursuit of
poverty reduction.
 Critical Components

z Real Value
- product should meet real risks of low-income households
- premium payment schedules should strive to match policyholders’ cash flows
- coverage should be easily understood/non-deceptive
- procedures for claiming benefits should be simple
- portion of premiums being used to pay claims should be high (at least 60%)
- expenses must be kept as low as possible, rarely exceeding 25-30% of premiums
- net income to the insurer should be modest (at most 5-10% of premium)
- sustainable

z efficiency in transactions and operations.

 Claims Processing
z The most important aspect of insurance

z Involves
- occurrence of an insured event
- collection of required documents
- presentation of the claims applications to an intermediary
or the insurer
- claims adjustment and settlement

z For microinsurance to be successful, operational and fraud

cost must be minimized

Fraud mitigation – claims validation, client visits

Essentials in Packaging a product
z Willing risk carrier / insurance market
- high risk
- refuse to offer terms

z Qualified Actuarial Input

- products pricing to be sustainable

z Historical Data Set

- reliable historical data on the index to be used is
essential for any index to be established

z Distribution Network

z Local Project Management

Reinsurance
Value proposition is enhancement of primary insurers’
ability to conduct business by reducing long-term
cost of the underwritten risk.

4 MAIN FINANCIAL EXPOSURE

CAPACITY CATASTROPHES
SURPLUS RELIEF STABILIZATION

Services relevant for microinsurers

 Self Insurance

z MFIEstablishment:
- product features
- pricing
- collects premiums
- pool the funds
- pay claims from internal funds
Limitations to Self Insurance

1. Lack of expertise
- no insurance expertise
- calculate premiums
- determine reserves
- require actuaries
- lack of access to reinsurance
- adverse attritional
- natural catastrophe
Limitations to Self Insurance
2. Leads to poorly designed product
- poorly priced product
- poor value for money to clients
- loses money for seller
- temptation to raid the fund
- no reserve build up
For incurred but not reported losses
- no cover for future losses
- catastrophes
- natural disasters
- disease epidemics
- worsening trend of losses
Limitations to Self Insurance
3. Regulation
- Current trend of Government to regulate
- Ever increasing levels of institutional risk
Traditional MFI partnership in Micro Insurance

Delivery and
Insurance Risk Service
Individual
Carrier or groups

Reinsurance Insurer MFI Insured

Partner – Agent / Mutual Model
Risk Carrier
•Insurance Company
•Mutual
•Self-insurance
•Protected Cell Company

Distributor
Micro-insurance
•Direct to clients by MFI
through loan or savings
Administrator •Tied agent
•MFI by itself •Independent intermediary
•Insurance Company •Linked to another good or
•Amended agency agreement service (e.g. furniture sale)
•Outsource to third party
 MFI - MIA Partnership Model
Development of
Insurance Risk product Services Delivery and
Carrier Service Individual
or groups

Reinsurance Insurer Intermediary MFI Insured

MICRO INSURANCE AGENCY

 Functions:

MICRO FINANCE
INSURANCE INSTITUTION

INTERMEDIARY
Claims Processing
Claims Management
Training
Data Encoding and Processing
Claims Processing
Product Management and
Product Development
Administration
Data Encoding and Processing
Product Marketing
Underwriting
Reinsurance
Independent Micro Insurance intermediaries

z corporate or individual partnership

z independent of a single insurance company
z working locally or globally
z partnership with a risk carrier or multiple
insurers
z seek to serve large groups of clients
 Advantages
1. Product development:
An intermediary that can understand: the needs of the clients.
- operational realty of the MFI
- needs of the insurance company
- should be able to design a product that is more suitable for all
parties.

2. Transaction cost
- It is not cost efficient for an individual MFI to develop its own
MIS for transacting insurance business.
- an intermediary that benefits from a wider client bases and
global reach can fund such an overhead.
- investment in system reduces transaction cost
- operating efficiencies
 Advantages
3. Administration
- best equip to handle administration relating to
- claims processing
- responsible to insurance company
(Who are covered and premiums due)

4. Additional channel of sale

Without system, MFI’s are often unable to offer insurance products
to their clients outside of loan

5. Staff training and client Education

6. Range of Sustainable Product

7. Distribution network/linkages

8. Enhancement/technological
WHAT WE DO
MICRO INSURANCE
AGENCY

PRODUCT
DEVELOPMENT DISTRIBUTION PROCESSING

We source data from other stakeholders and local agencies for the
design/study of new products
Products are then presented to our partners locally and globally for
approval
Once required products are identified, we develop quantitative and
qualitative market research tools to identify client needs
WHAT WE DO
MICRO INSURANCE
AGENCY

PRODUCT
DEVELOPMENT DISTRIBUTION PROCESSING

Products designed are pilot tested and followed up by market

research to find out how the product has worked for the
clients.
WHAT WE DO
MICRO INSURANCE
AGENCY

PRODUCT
DEVELOPMENT DISTRIBUTION PROCESSING

BPO – Business Process Outsourcing

A cost-saving measure for tasks that MIA and its partners require that is
divided in 2 categories:
Back Office Outsourcing
Internal business functions – i.e. data processing & billing
Front Office Outsourcing
Client related services – i.e. marketing & technical
support
 Services
AIMS – Automated Insurance Management System
- a critical component in the timely and cost
effective provision of micro insurance services to
MFIs.
A state-of-the-art technology that specializes in the
following:
z Data encoding
z Large volume data processing
z Data Management
z Insurance Claims Processing
z Data Synchronization
z Automated Reports
Core Strengths

z Flexibility
- allows collection for a minimal set
of data, customised for a given MFI or
product
Core Strengths

z Transparency

- regular reporting
- provide detailed list of insured
- summary level report
Core Strengths

z Reliability
- Data processed is secure and
backed up

- Communications are sent with high

levels of encryption
 Education & Training

z MIA provides full training to the staff of its

partner organization.

z Currently working on deploying a micro

insurance curriculum for client education.
Research
z MIAPH conducts actual surveys and
evaluate the information about its
clients and their needs, and make
recommendations to MIA.

z Conducts research for development of

new products
Malawi Weather Index Insurance
z Joint World Bank / MIA project

z Zero credit available in 2004 to farmers

z Developed ground nut, maize, tobacco etc

z Loans for as little as $100 per acre increase

yields by more than 100%

z Today over $7m in credit available

Traditional vs weather index
z Multi-peril Crop z Index-Based Weather
Insurance Insurance
z Use weather parameter
z High
as a proxy for damage
Administrative
z Objective triggers and
Costs structured rules for
z Moral Hazard payouts
z Adverse Selection z Improved correlation
between need and
provision
 Risks faced by farmers
z Weather Related: z Non Weather Related:
z Drought z Displacement
z Typhoon z Civil Strife
z Flood z Economic Decline
z Frost z Price Collapse
z Hail z Pests

Insurance only covers causes captured by index

 FACTS for Crop Insurance
z Natural and man made disasters are the highest cause for MFI’s loan
defaults

z Agri-Agra Law requires that all banks set aside 20% of its loan portfolio
that shall be devoted to agriculture and agrarian (agri-agra) loans
z Agricultural loans are risky, Banks instead invest in government
bonds

z Philippine Banks Loan Portfolio (2006) P1.9T (USD47.5M)

20% is Php380B ($8.44B),

25% of this is Php 95 B

If agri-agra law is implemented, Php 1.17B will be

allotted on each of the Philippines’ 81 provinces
 PROGRAM WITH MFIs WILL:

z encourage banks to open their lending windows to

agriculture

z banks can be agricultural loans wholesalers

z MFIs can be agricultural loans retailers

z open the floodgates for the development of

agriculture

z provide a mechanism for the formation of the

commodities market
WHAT IS WEATHER RISK PROTECTION

z Financial protection based on the performance of a

specified index in relation to a specified trigger

z Offers protection against uncertain costs that result

from weather related volume volatility

z Farmers are compensated against unfavorable

weather fluctuations that impact physical volumes
produced
z Objective & Timely
 Drought Index Products

z Use historic rainfall at a weather station to

develop index

z All farmers growing rice within 20km radius

can be included

z Each weather station and crop has a different

price based on history & crop water
requirement
 Typhoon product design
z The amount of insurance payout is based on the:

z Wind speed of the typhoon

z The distance from the farmer’s field to the typhoon eye

z Wind speed and location of typhoon provided by the

Japanese Meteorological Authority (JMA)

z The location of the farmer is calculated by using GPS

technology and is added to the insurance policy
document
 Benefits:
z Policy pays when farmers are in most need of money,
such as when there is drought or typhoon during the
growing season.

z There is no need to file a claim. MIA checks Rainfall

and typhoon figures from the meteorological station
and determine whether a payout is due.

z 100% Reinsurance cover for agricultural risk

Reinsurer - Swiss Reinsurance, a leading and highly
diversified global reinsurer located in Zurich,
Switzerland
Season 1 - First phase of selling - September 2008
growing season
Season 2 - Second phase of selling - April 2009 growing season
Season 3 - Third and long term phase of selling - From
September 2009 onwards
Weather insurance is not a panacea

z It can enhance existing agricultural supply

chains and businesses, not create them

z It can help support expansion in rural

finance

z There are issues with basis risk

z Regulatory issues currently exist

 MICROINSURANCE FOR AGRICULTURE
• Life
• Accident
• Funeral
• Health

TRAINING &
INSTITUTIONAL
DEV’T
• Property insurance
MARK
• Stocks of E TI N G
AL Crop Insurance
merchandise
DEVEL
OPME FINANCI

bonds
NT
MFI ASSISTA
NCE

PO SU CILI
LO SS T
PM ING
V E CE U C

S T PP O T IE
T
EN
DE O D

HA R S
PR RO

FA

RV T
P

ES
T
Equipment floater
• Mortgage
redemption
insurance
Micro Insurance Associates Agency
Philippines
3F RCBC Savings Bank Bldg.
Luna St., Lapaz
Iloilo City

Country Manager: William H. Martirez

Email: william.martirez@microinsuranceagency.com
Website: www.microinsuranceagency.com

(033)320-0387 (033)508-4655
(033)300-1472 (033)329-0729

We provide the poor with opportunities to protect themselves against risks by

being the global leader in innovative insurance products and services
Acknowledgement:
Richard Leftley
President, Micro Insurance Agency Holdings, LLC
Opportunity International

Shadreck Mapfumo
Vice President for Crop Insurance, Micro Insurance Agency Holdings, LLC
World Bank Commodity Risk Management Group

James Sharpe
Micro Insurance Agency Holdings, LLC

Mae Joy Armada

Micro Insurance Agency Philippines
THANK YOU
Edited by Foxit PDF Editor
Copyright (c) by Foxit Software Company, 2004 - 2007
For Evaluation Only.