Cross-border risks for migrants and the potential of microinsurance

This article is a summary of a study entitled Risk Across Borders, which was written by Barbara Magnoni, Annette Lovoi, Rebecca Thornton, Julia Brown.

The path of a migrant is generally a risky one. Crossing borders, often illegally; leaving loved ones behind; trusting new people along the way; earning uncertain income. All these activities involve risk. Once migrants reach their destination, they face a new set of risks: learning languages and new cultural norms; seeking out employment in new environments; finding living arrangements. Once migrants find employment, the possibility of losing a job or being injured while working, add to risks. The hardships and vulnerability faced by migrants in the United States are intertwined with the problems of their families back home. Often undocumented, uninsured, and without labour contracts, migrants’ economic stability is precarious at best. Learning a new language and adapting to foreign work environments are additional, often overwhelming barriers to financial stability. On top of these hurdles, migrants often carry the added burden of supporting their families on both sides of the border; both in their host countries and back home through remittance payments. Migrants’ risks span two sides of a border, making these even more complex to tackle.

Insurance can help provide migrants with peace of mind that should they lose their job or fall sick, both they and their families will have a financial cushion. Yet for many migrants, access to insurance remains elusive. Recently there have been several investigations in the area of microinsurance that suggest innovative ways of providing insurance coverage to low-income migrants. EA Consultants collaborated with the Inter-American Development Bank in a study titled Risk Across Borders. The study analysed both the supply and demand issues around microinsurance products that can serve migrants. It focused specifically on Mexican migrants in New York City. On the supply side, the study identifies three existing business models for migrant-linked insurance throughout the world, which were dubbed: home, host, and hybrid models. Each model was categorised based upon the location of the insurer relative to the migrant. Few of these microinsurance models have been able to reach viable economies of scale.

The majority of microinsurance programmes for migrants represent home country models that cater to migrants from their specific countries, and are limited by the size of the migrant population from that country. Some host country models have achieved greater scale, primarily through the bancassurance model. For example, the Spanish bank La Caixa utilises its 4,500 branches as a distribution mechanism to reach immigrants who are already bank clients. Hybrid models, in which insurers on both sides of the border are able to cover risks on either side, are rare.

To begin to understand the potential demand for microinsurance among migrants, the study selected a specific population of Mexican immigrants in the United States, specifically in New York City. Mexican immigrants sent US$21 billion from the United States to Mexico each year;  these remittances represent the second largest source of hard currency for Mexico after oil revenues. Seventy-eight percent of these remittances are destined for basic consumption: rent, food, health, and services. It has been found that remittances from migrants are sources of hard-earned private funds that help low-income Mexicans cope with shortcomings in public services back home.  The field study involved field investigations, focus groups, key informant interviews and a survey of 1,004 Mexicans in New York City. This population is a young, newly arrived, and fast growing immigrant group in a relatively immigrant-friendly city and state in the United States. The results found that this demographic has a substantial need for risk mitigation products that cover their risks on both sides of the border. However, in order for microinsurance products to meet this existing need, several obstacles both on the supply and the demand side must first be addressed.

Obstacles and challenges

Legal and regulatory barriers are significant in the United States. These restrict home country models from selling policies in the U.S. However, host country models, where U.S. based insurers offer products to immigrants in the U.S., are constrained by a lack of low cost distribution channels that can reach this target market. While in developing countries, microinsurance has been distributed through alternative delivery channels (other than agents and brokers), in the U.S. traditional channels prevail and regulation protects them. Across the border, Mexican regulations prevent U.S. companies from insuring Mexican residents. Hybrid models could offer cross border products to insure migrants’ particular cross border risks, but would require more effort on behalf of multinational insurers as well as new, non-traditional delivery channels.

Stakeholders such as policy makers, donors, insurance companies, legislators, and immigrant associations, among others, can play an important role in helping to bring down the barriers to access to insurance services for Mexican immigrants in the United States. Based on the initial findings, and extrapolating from the market research in New York City, the study recommends a number of interventions on various levels.

On the demand side, there is a need to collaborate with private sector and public insurers on both sides of the border, as well as directly with the immigrant community to further understand their needs and concerns to ensure that products are adapted specifically to their interests. Smaller insurance policies with tangible components such as memberships in sports teams, preventative health services or counselling and financial education should be evaluated in the future. Smaller policies would need new forms of payments distribution channels that should be cost effective and reach scale. A more favourable legal and regulatory environment that allows some marketing of home based policies and makes more flexible allowances for marketing insurance through non-broker intermediaries for small policies would also be beneficial, and could create incentives for the entry into the market of the private sector.

Initiatives to link migration and insurance are still quite new. The ILO’s Microinsurance Innovation Facility will be publishing a global landscape document on this issue shortly. Future discussion on this topic will benefit from understanding existing experiences and from the lessons from microinsurance in the developing world that can be adapted to developed country markets. Over time, the untapped immigrant market will likely be seen as a direction for insurance companies to grow their microinsurance businesses, while extending their outreach to help the poor mitigate the risks they face on a daily basis.

January 2011