The Expert Forum “Understanding donor engagements in microinsurance”, organised by the Network last month with support from Making Finance Work for Africa (MFW4A), presented findings from the the landscape of donor activity study, commissioned by the Network in 2015 and carried out by LMG Consulting and centred on the future outlook for donors in the microinsurance space and the priority areas in which they aim to focus their funding efforts going forward.
The forum was facilitated by Ulrich Hess, Senior Advisor at GIZ, with Liz McGuinness, Founder and President of LMG Consulting presenting the study results, with interventions from donors operating in the sector, including Peter Wrede, of the World Bank, Aurore Lambert, from the Agence Française de Développement (AFD) and Lena Heron, of USAID.
Trends in donor funding
With the survey showing a dynamic and growing landscape, donors reported that the annual value of microinsurance grants will increase some or significantly in the 2016-2018 period, and what is more, no donors remaining in the sector reported decrease in funding levels going forward. The fact that geographic regions, including Eastern Europe and Central Asia, the MENA region and Sub-Saharan Africa will see relatively more support going forward also indicates a greater focus on low-income countries, suggesting that donors are seeing the value of investing in microinsurance as an important development and financial risk management tool for the underserved population.
McGuinness highlighted that one aim of the study was understanding the objectives and strategies of donors for supporting inclusive insurance. According to the findings, during the next three years, donors will be shifting their attention and increasingly prioritising advancing enabling environments (ranking of objective importance = 7.1 up from 6.8 in the period 2011-2015) and building market infrastructure (6.9 up from 6.6). Furthermore, when asked to describe their ideal role in supporting microinsurance, the majority of donors (12 out of 16) responded that it was for developing market systems approaches or a broad support of the sector.
Paving the way to Universal Health Coverage
The number one insurable interest in developing countries, according to Peter Wrede, Senior Insurance Specialist at the World Bank, is healthcare. However, as the first and second generation attempts at health microinsurance fell mostly by the wayside in the last decade-plus, due to the lack of game-changing mobile technology, among other reasons, and with disenchantment creeping in in the past few years, Universal Health Coverage (UHC) became a major ambition and point of advocacy for the World Bank and many countries.
This shift in paradigm, combined with mobile technology finally becoming relevant at scale - mostly through Mobile Network Operators (MNOs) distributed freemium models - has insured millions of people everywhere. The clear evidence that microinsurance is financially sustainable (at least in some lines of business) and at much larger scale – meaning the small margin-large volume business model is coming to age; and the idea that new business models, new technology-driven approaches disrupt the way financial services have been run for the last 50-100 years – seen through the emergence of FinTech in the last ten years, and the ever-growing concept of InsurTech – have laid the foundation for a conducive environment.
Wrede is quick to point out, however that if health microinsurance can now co-exist and play an important role on the way to UHC, it is due to a number of lessons learned that allow us to approach microinsurance from a different angle today, specifically health: One is that insurance alone is not sufficient to properly address healthcare financing. Also, there has been a lot more experience on value-added services or other ways to provide/reduce the cost of healthcare. Another is the recognition that insurance is the most difficult part of the package to sell, and therefore all other components (savings, loans etc.) should be made more attractive or more salient. Lastly, there is the thought that perhaps the approach should be to focus first on the ‘low-hanging fruit’ – the millions of a new and emerging middle class who have more purchasing power and more financial literacy, but are still uninsured- rather than the very bottom of the pyramid. All things considered, Wrede stressed that with the current World Bank global initiative for insurance solutions for emerging customers being launched, the one aspect they looked at an early stage, which they would not have done five years ago, is finding a sustainable business model for all players in the value chain.
Aurore Lambert, Project Manager at the AFD further contributed to the discussion by offering an insight into her organisation’s main financing objectives – facilitating financial access to health microinsurance. She outlined how health microinsurance can contribute to UHC. Building capacity to manage health financing schemes, which enables the capacities built at a small scale to be transferred to the government, even if microinsurance operators cannot scale up, as well as reaching informal economies are two ways that sum up AFD’s support of an integrated approach to UHC.
Priority sector: Agriculture
Donor responses indicate a more narrowly focused approach overall in the next three years, with an average of 3.3 sectors supported, down from the average amount supported in the past period. Agriculture is emerging with increasing importance for donors, with nine institutions ranking it as their number one priority, of whom most plan to increase their funding into this area for this year, and a few plan to increase it significantly, bringing the median amount committed to higher than average, compared to all other sectors. Agricultural-related insurance products also received 11 mentions by 9 donors in terms of greatest area for opportunity for supporting microinsurance, reinforcing the trend that donors are increasingly prioritising agricultural risk management.
Ulrich Hess, however, alerted to the obstacles that scaling up for agricultural insurance may encounter, including data (historical, weather stations), basis risk/actuarial capacity – for example there are only four or five actuaries in Sub-Saharan Africa, outside of South Africa, demand/financial literacy, distribution, sustainable business models, and regulatory hurdles (especially for index-based). Moreover, Hess cautioned that the key to intervening in insurance is having a multi-level, systemic approach – all the way from the policy level (regulators and ministries), the meso level (associations and service providers), to the micro level (insurers and distributors) – and that only a variety of interventions and services at these three levels operating in concert can lead to results.
USAID Senior Rural Development Advisor, Lena Heron shared her experiences, with regards to resilience, outlining the key features for USAID’s efforts in this area: The first rule of thumb is honing in on people and places subject to recurrent crises, with a developmental focus. Next, is to recognise shocks or stresses as perennial features (not anomalies) that warrant concurrent investment to reduce and manage risk (absorptive capacity), build adaptive capacity, and facilitate inclusive growth (transformative capacity). Lastly, the planning and implementation should be done based on a humanitarian and development analysis.
For instance, Heron brings up the example of the Government of Kenya scaling up an insurance product, built into their resilience portfolio, the aim of which is to have all households in the Kenyan dryland areas (ASAL) covered with a microinsurance product by 2017. She highlights that by using these microinsurance instruments, the government becomes the market maker, allowing for further expansion of market development and better access to a wider range of commercial insurance access. However, she stressed that to bring these products to scale, a concerted effort between multiple donors, government and the private sector is needed.
What donors consider to be key
One of the trends identified by Heron regarding donor contributions, specifically USAID, on the market systems approach is the big picture concept of integrating insurance products into the broader value chain, for example, countries looking to better integrate insurance instruments into their development programmes - efforts to reduce risk, efforts to increase access to finance etc. She sees however improvements needed on other issues around policy, enabling environment and infrastructure, but thinks this is remediable, as long as multiple donors work on different fronts.
Wrede concluded highlighting some of the components necessary for microinsurance to live up to its potential: With respect to the market systems approach, he emphasised the regulatory aspect, which can really make a difference to the success and effectiveness of microinsurance – consider the Philippines on one extreme and Mozambique on the other, the payment systems aspect to reduce the costs, and lastly the aspect of registration or universal authentication systems – authenticating patients in the case of health microinsurance, for example, as key elements required for microinsurance to flourish.
Written by Hugo Fulco, Communications Officer at the Microinsurance Network.