Problems of providing insurance to the poor

Appendix Three


Case study 1: Self-Employed Women’s Association (SEWA), Ahmedabad, India

SEWA is a trade union based in Ahmedabad city of Gujarat state in India. Since 1972 it has been organising poor, self-employed women of the informal sector, these women come from different occupations ranging from vendors, home-based workers and service providers. SEWA provides supportive service to 350,000 women in the form of healthcare, childcare, housing, training, full employment, self-reliance and insurance. In 1974 SEWA established a bank to provide savings and credit services to poor women, it has 175,000 depositors and close to 40 crores rupees (about US $ 8 million ) working capital (Pandya 2001).

In India more than 90% of the workers are in the informal sector, of the total women workforce almost 94% are in the informal sector. In 1992 through the collaborative effort of SEWA, SEWA Bank, the Life Insurance Corporation of India (LIC) and the United India Insurance Corporation of India, an integrated insurance program was started insuring women for life, health, assets, widowhood and accidents. The scheme now covers 90,000 women and men and is also linked to fixed deposit schemes at SEWA bank where the interest can pay premiums (SEWA 2000). In the last few years SEWA Insurance have been faced with a number of challenges, despite severe drought conditions LIC increased its annual premium by fifty percent (Rs 7.50). Heavy rain and flooding in July resulted in over 1000 claims for damages to houses and work tools, the earthquake of 2001 resulted in over 600 claims alone and lower interest rates meant that larger fixed deposits would be required (SEWA 2000). Without access to reinsurance the viability of the scheme is very much at risk from exposure to such large losses even with assistance from the GTZ fund, the insurance industry and SEWA family. The high capital requirement of Rs 100 crores ($23 million) prevents SEWA entering into the mainstream as an insurance company and accessing reinsurance markets. SEWA therefore needs to spread the risks of the scheme across a larger number of people and different income groups to try and achieve sustainability of its operations. With the assistance of a group of donors led by CGAP, SEWA has put together a business plan which forecasts full operational viability by Year 6 (2008). To manage the enhanced volumes of business and services required SEWA need to have in place professionals with technical and managerial skills different to those required by a trade union. To keep costs low there is a requirement to invest in computerization and make information flow and administration more effective and efficient. There is also a need to build up a reserve fund to cover the sharp increases in claims from catastrophic events. Without external funding and support, sustainability and full operational viability could not be achieved in the near future.

During my visit to SEWA in November 2001 I discussed with policyholders in two slum areas one rural and one urban in the Ahmedabad district on their need and understanding of insurance. Within the group of women the SEWA village representative was the most informed in terms of the coverage, exclusions and working of the insurance policy. There were quite a few women who had made claims and were very pleased with the reimbursement they received, however, there were some women who had not renewed their policy when the term elapsed as they had not made a claim. Within the villages there was still a large number of people without coverage, this was due to lack of affordability or lack of trust in insurance due to previously badly run government schemes.

The SEWA village representatives did not appear to have the right skills to educate the clients and there was no financial incentive (commission/bonuses) for them to increase the number of policyholders and maintain existing ones. Some members did not realise that their premiums would not be returned if they did not make a claim, others were not aware of the exclusions in the policy and limitations of coverage. When a SEWA claim is not paid the credibility of the policy is destroyed throughout the village, bad news travels fast and currently there is no effective mechanism in place to explain why claims are denied not only to the policyholder but to the village as a whole. If a genuine misunderstanding has taken place then premiums either should be returned or carried forward another year (although this should be done carefully as not to form a precedent). The benefits of long-term protection for policyholders and their families even if a loss is not incurred immediately, and the understanding that more people into the scheme would lead to lower premiums and/or additional coverage, is unclear. There are no incentives in place for current policyholders to remain claim-free using premium deductions or additional coverage. The benefits of risk pooling was not clearly understood and neither was the fact that the long term sustainability of the SEWA scheme depends on members not undertaking fraudulent or risky behaviour. When claims are paid the benefits of the policy need to be promoted, this is important where the member has had a policy for a number of years without making a claim. Subsequently, examples of those that did not have insurance and suffered a loss should also be made available to non-policyholders.

There needs to be greater research into the elasticity of premiums of SEWA members, many members did not feel the premiums were too high and may be able to pay a little more. Others felt it would be easier if they could make smaller regular payments than a large one off payment. The idea of the village representative collecting monthly premiums and then SEWA collecting on a quarterly basis was seen as a possibility to encourage other less well off to participate into the scheme or buy into additional coverage. Many of the members were unwilling to take time off from working in the fields to spend the necessary time in the hospital, others could not afford the costs of travelling to a treatment centre and instead paid extortionate prices to mobile general practitioners. Convenience is just as important to the poor as the price. Encouragement is needed for those that cannot buy into the scheme to access coverage, either by special donation schemes or by the village community contributing a little extra to pay for those that need the protection the most. (This could be something that is implemented using SEWA’s surplus in future years). The immediate resources of SEWA need to be directed to educating and encouraging the policyholders and motivating the village representatives to market products and control and monitor claims. The right infrastructure needs to be in place to provide efficient and effective services to a growing number of poor clients.

Case study 2: The Asian Confederation of Credit Unions (ACCU), Bangkok, Thailand

Formed in 1971, ACCU represents 15 national movements serving over fourteen thousand credit unions with nine million individual members in thirteen countries. The mission of ACCU is to promote and strengthen credit unions to enable them to facilitate the socio-economic development of people (ACCU 2000a). A number of credit unions have undertaken micro-insurance programs predominantly providing protection against savings and loans. However, the nature of insurance is far more complex than providing credit and savings products and a number of credit unions are experiencing difficulties in providing sustainable and viable programs. In May 2000 ACCU invited myself and two ICMIF insurance consultants to facilitate a workshop on strategies and alternatives for loan protection and life savings programs in credit unions. The 20 participants represented 10 organisations of credit unions and co-operatives and discussed the challenges and opportunities facing member-federations on insurance business. A number of problems were outlined over the two day workshop but two central concerns were highlighted which were preventing adequate and affordable insurance products to be provided to the poor. Firstly, the high regulatory requirements in respect of minimum capital meant that small insurers providing at the local level were operating on an informal and illegal basis. Previously, credit unions in Bangladesh, Indonesia and Sri Lanka were provided protection by CUNA Mutual, an American credit union based insurance company. The withdrawal of CUNA Mutual in 1998 from these countries meant there was now a critical problem in obtaining reinsurance cover and ensuring the solvency of the schemes. Without reinsurance the level of cover and nature of risk protection provided to the poor is limited to the premiums and reserves of the credit union, this is minimal as with low-income households premiums are small and reserves difficult to accumulate. The second issue raised was the need for technical expertise, providing insurance on a prudent basis for credit unions is a complicated process, without adequate underwriting, actuarial and business planning expertise available the credit unions have found it difficult to pay claims promptly. For the credit union these skills are unavailable in the local community and too expensive to purchase on the open market (ACCU 2000b).