‘Reinsurance is the shifting of part or all of the insurance originally written by one insurer to another insurer” (Brown & Churchill 1999)
Once insurance operations have become formalised and there is adequate training of staff, the immediate need for the micro-insurance provider is to obtain reinsurance cover. Reinsurance enables companies to grow beyond the restrictions of their reserves, it stabilises financial results against unexpected claims, protects against catastrophic losses, facilitates access to new technologies and provides increased risk cover to the policyholder. In the first few years of operations the solvency of the micro-insurer is at its most vulnerable, reinsurance allows claims to be paid quickly and underwriting experience to be achieved, whilst still maintaining premium levels and enhancing the credibility of the scheme (Ripoll 1996, Brown & Churchill 1999, Brown & Churchill 2000).
Many developing countries require reinsurance to be placed with local reinsurers due to political considerations and foreign exchange policies, however, domestic players are able to provide minimal retention capacity (Outreville 1996, Matringe 1997, IDB 1977). The absence of futures markets and reinsurance companies would normally leave the state responsible to bear the risk (Matringe 1997). Unfortunately in developing countries the government does not have the capacity to compensate for a natural disaster. Consequently, they have to rely on external aid and post disaster funding to cope with the consequences of these events, but these sources are also becoming limited in supply against growing demand (Pollner 2001). There is a need to transfer this risk onto the international insurance and reinsurance markets. International reinsurers are more diversified than local reinsurers, but here too the frequency of global catastrophes mean that available reinsurance is also short in supply and quite expensive (Pollner 2001, Outreville 1996). Consequently, many newly established (formalised) micro-insurers are finding it very difficult to obtain adequate and affordable cover locally and internationally (Matringe 1997). Even when a
Monday, January 3, 2011
Poverty in 1990 and future projections of poverty in 2015
Poverty (% under $1 a day at 1985 purchasing parity price)
1990 2015
No change in conditions 2015
Pro-poor higher growth rate
A B
Sub-Saharan Africa 44 42 36 25
Middle East & North Africa 3 2 1.6 1
East Africa and Pacific 31 12 12 9
South Asia 47 30 24 16
Latin America & Caribbean 28 19 17 12
Eastern Europe & Central Asia 9 5 4 3
Developing countries 36 22 18 13
A - No change in main conditions of growth and economic growth rates remain the same as between 1965 and 1997.
B – No change in main conditions but assumes forecast (usually higher) growth rates.
(Bolded figures reflect where poverty target is achieved)
Source: Hanmer et al (2000).
Whilst growth of average household incomes of the poor is necessary to achieve sustained long-term poverty reductions, growth in overall per capita income is of no benefit if there is increasing inequality (McKay 1997). Gender inequality, in particular, is one of the largest constraints on growth and poverty reduction, an increase in number of girls in school and female literacy will reduce poverty, reduce fertility and improve child survival (Hanmer et al 2000).
Evaluating the impact on poverty of any program is difficult to measure, as poverty itself is not precise. Attention in the past has focused on income, expenditure, consumption and assets. More recently, focus has been on social indicators such as educational status, nutritional levels, access to health services and empowerment of the individual, measuring empowerment requires a greater level of skill and complexity of calculations (Hulme 1999). Insurance can assist in achieving greater equality and empowerment of the poor by protecting them against unforeseen losses and giving them the courage to improve their productivity and livelihood through access to education, health and labour. For many years MFIs focusing on providing loans and savings were ignored, there was a perception that the poor could not and would not save. The popularity of these schemes have shown that the poor do have a propensity to save and to repay loans, with numerous successful and sustainable credit and savings program in place around the world. However, the number of people in poverty and the rate of inequality is still rising. Savings and loans are not sufficient on their own to prevent people from falling back into the viscous circle of poverty in times of crisis or severe loss. Providing insurance can ensure that the foundations on which poverty alleviation is built is strong enough to keep the individual out of poverty. Products such as loan protection, life savings and health insurance should be introduced at an early stage into the services of a microfinance program instead of a ‘nice to have’ much further down the line. The role of insurance needs to be given equal importance to that of loans and savings, indeed the success of loan and savings schemes depends on the availability of complimentary insurance products.
Improved access to financial services does not necessarily mean that the material and social welfare of the poor will be improved. Provision of insurance does not provide cures for diseases, food, clean water, shelter, schools, law and order or even the basic rights of human beings, the poor are continuously ‘kept in place’ by corrupt regimes and greedy multinationals. So the question is how can insurance empower people when their day to day necessities are restricted? Insurance enables the poor to dedicate more time and resources to obtaining these necessary services, it gives them confidence to confront risks and gives them peace of mind in an uncertain environment, benefits which cannot be measured. Insurance protects the disposable income of the poor, it enables them to invest in their business, their children’s education, accommodation, and access adequate sanitation and clothing, providing a better chance to pursue and achieve a better standard of living. Protection against the costs of health services enables the poor to participate more and derive benefits from new economic activity, and access new technologies. In developing countries money talks, if you have the funds you are able to find the means, improved welfare of the poor will enable greater rights and a voice that will demand to be heard. Schemes such as the SEWA Insurance scheme in India is a prime example of how insurance can also support gender equality and empower the woman to achieve a better standard of livelihood. Insurance with other microfinance products enables the poor to come together to defeat the common foe of poverty and overcome the challenges that continuously try and keep them down.
The poorest of the poor are excluded from accessing microfinance programmes due to their lack of income. Microinsurance is only appropriate for those that have an income and therefore is limited to what it can do for the poorest. This does not mean that the needs of the poorest should be ignored and they should only be provided with short-term measures such as food rations, water and shelter. The quest is to make people self-sufficient, to give them the confidence and the means to achieve a better standard of living. The poor themselves are the most determined to escape from their situation, they are very proud people and have the greatest concern for their families welfare, particularly women, but are prevented by factors which are outside of their control. Aid in the form of food, water and sanitation should be provided to the very poor, but there should be an investigation into the effects on long-term livelihood and moral if they were provided access to selected insurance products whose premiums were paid for (or subsidised) in the initial years. Subsidised savings and loans while useful can and are used for other means, whilst insurance is designed to protect against a certain loss or event occurring and therefore is less open to misuse.
Providing insurance products successfully can also become an important income stream for the microfinance institute and protect its loan portfolio. The Grameen bank is reported to be experiencing high delinquency rates on its loan portfolio due to the effects of floods in Bangladesh in 1998, inadequate provisioning, and competition from other lending institutes (Pearl and Phillips 2001). Whilst cover against the frequent flooding in Bangladesh may not be available, the low take up of Grameen’s microinsurance scheme (around 30,000 policyholders) means that the majority of Grameen lenders are vulnerable to other more frequent perils. This has the effect of weakening even further their ability to survive a catastrophic event such as flooding. A successful microfinance institute will benefit the local community in the form of more efficient and effective services, and also additional income if the institute is a co-operative. The benefits of protection and better financial services to a micro-enterprise can increase potential household income, leading to greater household security, better morbidity and mortality of household members and eventually improved education, and social and economic opportunities.
Insurance is not the be all or end all of poverty alleviation, it is not the ‘magic’ solution to problems of the poor but if appropriately provided it can play an important role in ensuring sustainable development and poverty alleviation. The full benefits of insurance cannot be realised in the unique environment of a developing country. There does need to be more resources put towards: improving access to capital, pro-poor social expenditure, employment opportunities, illnesses prevention, population control, regulatory systems, institutional reform, infrastructure, political stability, democracy, social equality and a stable economy. But hand in hand with these developments the role of insurance is of equal importance for long term sustainable success in poverty alleviation and reducing overall inequality.
5.2. – Delivering insurance to the poor
An insurance scheme for the poor which is affordable, adequate and sustainable is difficult to achieve due to lack of financial capital, technical resources, adequate numbers, trusts, regulatory requirements, transparency and accountability. The road to achieving a comprehensive insurance scheme is full of pitfalls and must be undertaken cautiously and carefully with good corporate governance at the heart of each step. The appropriate form for servicing the poor and one that has been used for centuries is that of a co-operative. A good co-operative will serve the needs of members, providing flexible, affordable and appropriate products. As the scheme belongs to the poor it will minimise fraud and moral hazard, and encourage participation. Partnerships with technical advisors, international donors or organisations such as ICMIF are imperative to ensure that the organisation grows into a self-sufficient, licensed insurance co-operative (or at least is able to provide a comprehensive range of products on a sustainable basis). The co-operative identity will ensure that the needs of the poor are not ignored as has been the case with so many other large non-co-operative insurance companies in developing countries. Implementation of co-operative schemes can also provide security to large populations of Muslims in poor countries.
The environment of each country, each region and each village is different and its insurance requirements are also unique, therefore to put forward a standardised approach to establishing a micro-insurance scheme would be impractical. However the following process summarises the main thoughts of this paper to achieving a sustainable and viable insurance scheme:
1990 2015
No change in conditions 2015
Pro-poor higher growth rate
A B
Sub-Saharan Africa 44 42 36 25
Middle East & North Africa 3 2 1.6 1
East Africa and Pacific 31 12 12 9
South Asia 47 30 24 16
Latin America & Caribbean 28 19 17 12
Eastern Europe & Central Asia 9 5 4 3
Developing countries 36 22 18 13
A - No change in main conditions of growth and economic growth rates remain the same as between 1965 and 1997.
B – No change in main conditions but assumes forecast (usually higher) growth rates.
(Bolded figures reflect where poverty target is achieved)
Source: Hanmer et al (2000).
Whilst growth of average household incomes of the poor is necessary to achieve sustained long-term poverty reductions, growth in overall per capita income is of no benefit if there is increasing inequality (McKay 1997). Gender inequality, in particular, is one of the largest constraints on growth and poverty reduction, an increase in number of girls in school and female literacy will reduce poverty, reduce fertility and improve child survival (Hanmer et al 2000).
Evaluating the impact on poverty of any program is difficult to measure, as poverty itself is not precise. Attention in the past has focused on income, expenditure, consumption and assets. More recently, focus has been on social indicators such as educational status, nutritional levels, access to health services and empowerment of the individual, measuring empowerment requires a greater level of skill and complexity of calculations (Hulme 1999). Insurance can assist in achieving greater equality and empowerment of the poor by protecting them against unforeseen losses and giving them the courage to improve their productivity and livelihood through access to education, health and labour. For many years MFIs focusing on providing loans and savings were ignored, there was a perception that the poor could not and would not save. The popularity of these schemes have shown that the poor do have a propensity to save and to repay loans, with numerous successful and sustainable credit and savings program in place around the world. However, the number of people in poverty and the rate of inequality is still rising. Savings and loans are not sufficient on their own to prevent people from falling back into the viscous circle of poverty in times of crisis or severe loss. Providing insurance can ensure that the foundations on which poverty alleviation is built is strong enough to keep the individual out of poverty. Products such as loan protection, life savings and health insurance should be introduced at an early stage into the services of a microfinance program instead of a ‘nice to have’ much further down the line. The role of insurance needs to be given equal importance to that of loans and savings, indeed the success of loan and savings schemes depends on the availability of complimentary insurance products.
Improved access to financial services does not necessarily mean that the material and social welfare of the poor will be improved. Provision of insurance does not provide cures for diseases, food, clean water, shelter, schools, law and order or even the basic rights of human beings, the poor are continuously ‘kept in place’ by corrupt regimes and greedy multinationals. So the question is how can insurance empower people when their day to day necessities are restricted? Insurance enables the poor to dedicate more time and resources to obtaining these necessary services, it gives them confidence to confront risks and gives them peace of mind in an uncertain environment, benefits which cannot be measured. Insurance protects the disposable income of the poor, it enables them to invest in their business, their children’s education, accommodation, and access adequate sanitation and clothing, providing a better chance to pursue and achieve a better standard of living. Protection against the costs of health services enables the poor to participate more and derive benefits from new economic activity, and access new technologies. In developing countries money talks, if you have the funds you are able to find the means, improved welfare of the poor will enable greater rights and a voice that will demand to be heard. Schemes such as the SEWA Insurance scheme in India is a prime example of how insurance can also support gender equality and empower the woman to achieve a better standard of livelihood. Insurance with other microfinance products enables the poor to come together to defeat the common foe of poverty and overcome the challenges that continuously try and keep them down.
The poorest of the poor are excluded from accessing microfinance programmes due to their lack of income. Microinsurance is only appropriate for those that have an income and therefore is limited to what it can do for the poorest. This does not mean that the needs of the poorest should be ignored and they should only be provided with short-term measures such as food rations, water and shelter. The quest is to make people self-sufficient, to give them the confidence and the means to achieve a better standard of living. The poor themselves are the most determined to escape from their situation, they are very proud people and have the greatest concern for their families welfare, particularly women, but are prevented by factors which are outside of their control. Aid in the form of food, water and sanitation should be provided to the very poor, but there should be an investigation into the effects on long-term livelihood and moral if they were provided access to selected insurance products whose premiums were paid for (or subsidised) in the initial years. Subsidised savings and loans while useful can and are used for other means, whilst insurance is designed to protect against a certain loss or event occurring and therefore is less open to misuse.
Providing insurance products successfully can also become an important income stream for the microfinance institute and protect its loan portfolio. The Grameen bank is reported to be experiencing high delinquency rates on its loan portfolio due to the effects of floods in Bangladesh in 1998, inadequate provisioning, and competition from other lending institutes (Pearl and Phillips 2001). Whilst cover against the frequent flooding in Bangladesh may not be available, the low take up of Grameen’s microinsurance scheme (around 30,000 policyholders) means that the majority of Grameen lenders are vulnerable to other more frequent perils. This has the effect of weakening even further their ability to survive a catastrophic event such as flooding. A successful microfinance institute will benefit the local community in the form of more efficient and effective services, and also additional income if the institute is a co-operative. The benefits of protection and better financial services to a micro-enterprise can increase potential household income, leading to greater household security, better morbidity and mortality of household members and eventually improved education, and social and economic opportunities.
Insurance is not the be all or end all of poverty alleviation, it is not the ‘magic’ solution to problems of the poor but if appropriately provided it can play an important role in ensuring sustainable development and poverty alleviation. The full benefits of insurance cannot be realised in the unique environment of a developing country. There does need to be more resources put towards: improving access to capital, pro-poor social expenditure, employment opportunities, illnesses prevention, population control, regulatory systems, institutional reform, infrastructure, political stability, democracy, social equality and a stable economy. But hand in hand with these developments the role of insurance is of equal importance for long term sustainable success in poverty alleviation and reducing overall inequality.
5.2. – Delivering insurance to the poor
An insurance scheme for the poor which is affordable, adequate and sustainable is difficult to achieve due to lack of financial capital, technical resources, adequate numbers, trusts, regulatory requirements, transparency and accountability. The road to achieving a comprehensive insurance scheme is full of pitfalls and must be undertaken cautiously and carefully with good corporate governance at the heart of each step. The appropriate form for servicing the poor and one that has been used for centuries is that of a co-operative. A good co-operative will serve the needs of members, providing flexible, affordable and appropriate products. As the scheme belongs to the poor it will minimise fraud and moral hazard, and encourage participation. Partnerships with technical advisors, international donors or organisations such as ICMIF are imperative to ensure that the organisation grows into a self-sufficient, licensed insurance co-operative (or at least is able to provide a comprehensive range of products on a sustainable basis). The co-operative identity will ensure that the needs of the poor are not ignored as has been the case with so many other large non-co-operative insurance companies in developing countries. Implementation of co-operative schemes can also provide security to large populations of Muslims in poor countries.
The environment of each country, each region and each village is different and its insurance requirements are also unique, therefore to put forward a standardised approach to establishing a micro-insurance scheme would be impractical. However the following process summarises the main thoughts of this paper to achieving a sustainable and viable insurance scheme:
The path towards a viable and sustainable micro-insurance scheme
*The number of years for the micro-insurance provider to complete each ‘step’ would be dependent on the ability, dedication and motivation of the managers of scheme, the quality of the technical partner, membership size, good corporate governance and local regulatory requirements. In particular, the activities in the first few years will determine the success of the scheme as demonstrated by the diagram.
ª If the provider decided to aim for formalisation then it is envisaged that twenty years would be the longest period of time it should take to achieve legal status.
5.3. – The way forward
Years of subsidies and grants have not achieved any recognisable inroads into poverty alleviation. It is only recent investigation into the real reasons preventing sustainable growth out of poverty that the role of risk protection mechanisms has been acknowledged. There is a responsibility now for governments and international aid organisations to create an enabling environment for the development of social protection mechanisms to the poor. Long term solutions that build towards a better life for future generation are more beneficial to the cause of poverty alleviation than subsidies that support short-term measures. International agencies working with the poor such as ICMIF, WOCCU, ICA, CGAP, USAID and Freedom from Hunger need to collaborate and share information and projects to a greater extent. The onus is on industry experts and representatives such as ICMIF to form partnerships to investigate innovative ways to overcome the needs of the poor and make more modern risk transfer mechanisms such as commodity pricing, weather protection and crop insurance available and work in practice for the poor. The technical expertise and training facilities of organisations such as ICMIF should be used to support more microinsurance programs to become viable and sustainable. The overriding aim should be to get the most effective assistance to the most people in the most efficient way.
There needs to be greater involvement of the poor in guiding development projects and less reliance on national governments and academics who believe they know what the issues are. The poor desire to be empowered, they are in the best position and have the greatest determination to escape poverty, all they want is a fair chance to achieve it. Co-operative insurance, through the protection and solidarity it provides, and its pro-poor principles, empowers individuals to have the capability to secure a better future for themselves and for subsequent generations.
ª If the provider decided to aim for formalisation then it is envisaged that twenty years would be the longest period of time it should take to achieve legal status.
5.3. – The way forward
Years of subsidies and grants have not achieved any recognisable inroads into poverty alleviation. It is only recent investigation into the real reasons preventing sustainable growth out of poverty that the role of risk protection mechanisms has been acknowledged. There is a responsibility now for governments and international aid organisations to create an enabling environment for the development of social protection mechanisms to the poor. Long term solutions that build towards a better life for future generation are more beneficial to the cause of poverty alleviation than subsidies that support short-term measures. International agencies working with the poor such as ICMIF, WOCCU, ICA, CGAP, USAID and Freedom from Hunger need to collaborate and share information and projects to a greater extent. The onus is on industry experts and representatives such as ICMIF to form partnerships to investigate innovative ways to overcome the needs of the poor and make more modern risk transfer mechanisms such as commodity pricing, weather protection and crop insurance available and work in practice for the poor. The technical expertise and training facilities of organisations such as ICMIF should be used to support more microinsurance programs to become viable and sustainable. The overriding aim should be to get the most effective assistance to the most people in the most efficient way.
There needs to be greater involvement of the poor in guiding development projects and less reliance on national governments and academics who believe they know what the issues are. The poor desire to be empowered, they are in the best position and have the greatest determination to escape poverty, all they want is a fair chance to achieve it. Co-operative insurance, through the protection and solidarity it provides, and its pro-poor principles, empowers individuals to have the capability to secure a better future for themselves and for subsequent generations.
The plight of the poor in low human development countries
Appendix One
HDI
rank
1998 Country
HDI value
1998 GDP per capita
(PPP US$)
1998 GDI
value
1998 Population without access Share of income or consumption
To safe water (%)
1990-98 To health
Services
(%)
1981-93 To sani-tation
(%)
1990-98 Poorest
20%
(%)
1987-98 Richest
20%
(%)
1987-98
140 Lao People’s Dem. Rep. 0.484 1,734 0.469 32 0 - 9.6 40.2
141 Madagascar 0.483 756 0.478 32 0 - 5.1 52.1
142 Bhutan 0.483 1,536 - 42 20 30 - -
143 Sudan 0.477 1,394 0.453 27 30 49 - -
144 Nepal 0.474 1,157 0.449 29 90 84 7.6 44.8
145 Togo 0.471 1,372 0.448 45 - 63 - -
146 Bangladesh 0.461 1,361 0.441 5 26 57 8.7 42.8
147 Mauritania 0.451 1,563 0.441 63 70 43 6.2 45.6
148 Yemen 0.448 719 0.389 39 84 34 6.1 46.1
149 Djibouti 0.447 1,266 - 32 0 - - -
150 Haiti 0.440 1,383 0.436 63 55 75 - -
151 Nigeria 0.439 795 0.425 51 33 59 4.4 55.7
152 Congo, Dem. Rep. of the 0.430 822 0.418 32 0 - - -
153 Zambia 0.420 719 0.413 62 25 29 4.2 54.75
154 Côte d’Ivoire 0.420 1,598 0.401 58 40 61 7.1 44.3
155 Senegal 0.416 1,307 0.405 19 60 35 6.4 48.2
156 Tanzania, U. Rep. of 0.415 480 0.410 34 7 14 6.8 45.5
157 Benin 0.411 867 0.391 44 58 73 - -
158 Uganda 0.409 1,074 0.401 54 29 43 6.6 46.1
159 Eritrea 0.408 833 0.394 32 0 - - -
160 Angola 0.405 1,821 - 69 76 60 - -
161 Gambia 0.396 1,453 0.388 31 - 63 4.4 52.8
162 Guinea 0.394 1,782 - 54 55 69 6.4 47.2
163 Malawi 0.385 523 0.375 53 20 97 - -
164 Rwanda 0.382 660 0.377 21 - - 9.7 39.1
165 Mali 0.380 681 0.371 34 80 94 4.6 56.2
166 Central African Republic 0.371 1,118 0.359 62 88 73 2.0 65.0
167 Chad 0.367 856 - 32 0 - - -
168 Mozambique 0.341 782 0.326 54 70 66 6.5 46.5
169 Guinea-Bissau 0.331 616 0.298 57 36 54 2.1 58.9
170 Burundi 0.321 570 - 48 20 49 7.9 41.6
171 Ethiopia 0.309 574 0.297 75 45 81 7.1 47.7
172 Burkina Faso 0.303 870 0.290 58 30 63 5.5 55.0
173 Niger 0.293 739 0.280 39 70 81 2.6 53.3
174 Sierra Leone 0.252 458 - 66 64 89 1.1 63.4
HDI (Human development index) – composite index based on life expectancy, educational attainment and standard of living. A HDI below 0.500 reflects low human development and well being.
GDI (Gender-related development index) – composite index using same variables as HDI but adjusted in accordance with the disparity in achievement between women and men. A GDI of less than 0.500 show that women in these countries suffer the double deprivation of low overall achievement in human development than men.
Source: UNDP (2000).
HDI
rank
1998 Country
HDI value
1998 GDP per capita
(PPP US$)
1998 GDI
value
1998 Population without access Share of income or consumption
To safe water (%)
1990-98 To health
Services
(%)
1981-93 To sani-tation
(%)
1990-98 Poorest
20%
(%)
1987-98 Richest
20%
(%)
1987-98
140 Lao People’s Dem. Rep. 0.484 1,734 0.469 32 0 - 9.6 40.2
141 Madagascar 0.483 756 0.478 32 0 - 5.1 52.1
142 Bhutan 0.483 1,536 - 42 20 30 - -
143 Sudan 0.477 1,394 0.453 27 30 49 - -
144 Nepal 0.474 1,157 0.449 29 90 84 7.6 44.8
145 Togo 0.471 1,372 0.448 45 - 63 - -
146 Bangladesh 0.461 1,361 0.441 5 26 57 8.7 42.8
147 Mauritania 0.451 1,563 0.441 63 70 43 6.2 45.6
148 Yemen 0.448 719 0.389 39 84 34 6.1 46.1
149 Djibouti 0.447 1,266 - 32 0 - - -
150 Haiti 0.440 1,383 0.436 63 55 75 - -
151 Nigeria 0.439 795 0.425 51 33 59 4.4 55.7
152 Congo, Dem. Rep. of the 0.430 822 0.418 32 0 - - -
153 Zambia 0.420 719 0.413 62 25 29 4.2 54.75
154 Côte d’Ivoire 0.420 1,598 0.401 58 40 61 7.1 44.3
155 Senegal 0.416 1,307 0.405 19 60 35 6.4 48.2
156 Tanzania, U. Rep. of 0.415 480 0.410 34 7 14 6.8 45.5
157 Benin 0.411 867 0.391 44 58 73 - -
158 Uganda 0.409 1,074 0.401 54 29 43 6.6 46.1
159 Eritrea 0.408 833 0.394 32 0 - - -
160 Angola 0.405 1,821 - 69 76 60 - -
161 Gambia 0.396 1,453 0.388 31 - 63 4.4 52.8
162 Guinea 0.394 1,782 - 54 55 69 6.4 47.2
163 Malawi 0.385 523 0.375 53 20 97 - -
164 Rwanda 0.382 660 0.377 21 - - 9.7 39.1
165 Mali 0.380 681 0.371 34 80 94 4.6 56.2
166 Central African Republic 0.371 1,118 0.359 62 88 73 2.0 65.0
167 Chad 0.367 856 - 32 0 - - -
168 Mozambique 0.341 782 0.326 54 70 66 6.5 46.5
169 Guinea-Bissau 0.331 616 0.298 57 36 54 2.1 58.9
170 Burundi 0.321 570 - 48 20 49 7.9 41.6
171 Ethiopia 0.309 574 0.297 75 45 81 7.1 47.7
172 Burkina Faso 0.303 870 0.290 58 30 63 5.5 55.0
173 Niger 0.293 739 0.280 39 70 81 2.6 53.3
174 Sierra Leone 0.252 458 - 66 64 89 1.1 63.4
HDI (Human development index) – composite index based on life expectancy, educational attainment and standard of living. A HDI below 0.500 reflects low human development and well being.
GDI (Gender-related development index) – composite index using same variables as HDI but adjusted in accordance with the disparity in achievement between women and men. A GDI of less than 0.500 show that women in these countries suffer the double deprivation of low overall achievement in human development than men.
Source: UNDP (2000).
The availability of insurance to the poor
Appendix Two
HDI
rank
1998 Country
HDI value
1998 GDP per capita
(PPP US$)
1998 Insurance density:
premiums
per capita
1998
(USD) * Insurance penetration:
premiums
as a share of GDP 1998 (%)*
World
population
1998
(%) World insurance
market
1998
(%)* World insurance
Market
2000
(%)*
48 Costa Rica 0.797 5,987 69.0 2.34 0.06 0.01 0.00
49 Croatia 0.795 6,749 133.7 2.94 0.08 0.03 0.01
55 Mexico 0.784 7,704 62.9 1.52 1.65 0.29 0.33
59 Panama 0.776 5,249 119.8 3.59 0.05 0.02 0.01
60 Bulgaria 0.772 4,809 16.1 1.08 0.14 0.01 0.00
61 Malaysia 0.772 8,137 133.4 4.02 0.37 0.13 0.13
62 Russian Federation 0.771 6,460 29.4 1.56 2.53 0.20 0.19
63 Latvia 0.771 5,728 60.8 2.34 0.04 0.01 0.00
64 Romania 0.770 5,648 12.1 0.71 0.39 0.01 0.00
65 Venezuela 0.770 5,808 76.5 1.89 0.40 0.08 0.00
68 Colombia 0.764 6,006 51.3 2.33 0.70 0.10 0.03
71 Mauritius 0.761 8,312 157.2 4.32 0.02 0.01 0.01
72 Libyan Arab Jamahiriya 0.760 6,697 35.9 - 0.09 0.01 -
74 Brazil 0.747 6,625 103.3 2.15 2.85 0.78 0.14
75 Saudi Arabia 0.747 10,158 39.1 0.52 0.35 0.04 0.00
76 Thailand 0.745 5,456 41.5 2.28 1.04 0.12 0.12
77 Philippines 0.744 3,555 13.0 1.50 1.25 0.05 0.04
78 Ukraine 0.744 3,194 6.4 0.76 0.88 0.01 0.00
80 Peru 0.737 4,282 23.3 0.90 0.43 0.03 0.01
82 Lebanon 0.735 4,326 140.4 2.69 0.06 0.02 0.01
84 Sri Lanka 0.733 2,979 10.0 1.20 0.32 0.01 0.01
85 Turkey 0.732 6,422 33.1 1.06 1.11 0.10 0.03
86 Oman 0.730 9,960 58.5 0.87 0.04 0.01 0.00
87 Dominican Republic 0.729 4,598 29.0 1.70 0.14 0.01 0.00
91 Ecuador 0.722 3,003 21.5 1.32 0.21 0.01 0.00
92 Jordan 0.721 3,347 29.8 1.90 0.11 0.01 -
97 Iran, Islamic Rep. of 0.709 5,121 18.6 0.67 1.13 0.05 0.00
99 China 0.706 3,105 11.4 1.49 21.58 0.66 0.79
101 Tunisia 0.703 5,404 35.4 1.65 0.16 0.02 0.00
103 South Africa 0.697 8,488 571.6 3.49 0.68 1.15 1.16
104 El Salvador 0.696 4,036 22.7 1.16 0.10 0.01 0.01
107 Algeria 0.683 4,792 9.1 0.54 0.52 0.01 0.00
108 Vietnam 0.671 1,689 1.8 0.51 1.33 0.01 0.00
109 Indonesia 0.670 2,651 5.8 1.27 3.55 0.06 0.05
111 Syrian Arab Republic 0.660 2,892 23.0 0.52 0.26 0.02 -
119 Egypt 0.623 3,041 8.5 0.65 1.13 0.02 0.01
120 Guatemala 0.619 3,505 16.2 0.92 0.19 0.01 0.00
124 Morocco 0.589 3,305 33.8 2.60 0.47 0.04 0.02
128 India 0.563 2,077 8.6 2.61 16.88 0.39 0.50
130 Zimbabwe 0.555 2,669 27.9 3.92 0.20 0.01 0.01
135 Pakistan 0.522 1,715 2.9 0.66 2.55 0.02 0.01
138 Kenya 0.508 980 9.5 3.48 0.50 0.01 0.00
151 Nigeria 0.439 795 2.7 0.86 1.83 0.02 0.00
HDI (Human development index) – composite index based on life expectancy, educational attainment and standard of living. A HDI below 0.500 reflects low human development and well being.
*Only those 88 countries with premium volumes more than USD 150 million have statistical data provided in Sigma
Source: UNDP (2000), Sigma (1999) and Sigma (2000).
HDI
rank
1998 Country
HDI value
1998 GDP per capita
(PPP US$)
1998 Insurance density:
premiums
per capita
1998
(USD) * Insurance penetration:
premiums
as a share of GDP 1998 (%)*
World
population
1998
(%) World insurance
market
1998
(%)* World insurance
Market
2000
(%)*
48 Costa Rica 0.797 5,987 69.0 2.34 0.06 0.01 0.00
49 Croatia 0.795 6,749 133.7 2.94 0.08 0.03 0.01
55 Mexico 0.784 7,704 62.9 1.52 1.65 0.29 0.33
59 Panama 0.776 5,249 119.8 3.59 0.05 0.02 0.01
60 Bulgaria 0.772 4,809 16.1 1.08 0.14 0.01 0.00
61 Malaysia 0.772 8,137 133.4 4.02 0.37 0.13 0.13
62 Russian Federation 0.771 6,460 29.4 1.56 2.53 0.20 0.19
63 Latvia 0.771 5,728 60.8 2.34 0.04 0.01 0.00
64 Romania 0.770 5,648 12.1 0.71 0.39 0.01 0.00
65 Venezuela 0.770 5,808 76.5 1.89 0.40 0.08 0.00
68 Colombia 0.764 6,006 51.3 2.33 0.70 0.10 0.03
71 Mauritius 0.761 8,312 157.2 4.32 0.02 0.01 0.01
72 Libyan Arab Jamahiriya 0.760 6,697 35.9 - 0.09 0.01 -
74 Brazil 0.747 6,625 103.3 2.15 2.85 0.78 0.14
75 Saudi Arabia 0.747 10,158 39.1 0.52 0.35 0.04 0.00
76 Thailand 0.745 5,456 41.5 2.28 1.04 0.12 0.12
77 Philippines 0.744 3,555 13.0 1.50 1.25 0.05 0.04
78 Ukraine 0.744 3,194 6.4 0.76 0.88 0.01 0.00
80 Peru 0.737 4,282 23.3 0.90 0.43 0.03 0.01
82 Lebanon 0.735 4,326 140.4 2.69 0.06 0.02 0.01
84 Sri Lanka 0.733 2,979 10.0 1.20 0.32 0.01 0.01
85 Turkey 0.732 6,422 33.1 1.06 1.11 0.10 0.03
86 Oman 0.730 9,960 58.5 0.87 0.04 0.01 0.00
87 Dominican Republic 0.729 4,598 29.0 1.70 0.14 0.01 0.00
91 Ecuador 0.722 3,003 21.5 1.32 0.21 0.01 0.00
92 Jordan 0.721 3,347 29.8 1.90 0.11 0.01 -
97 Iran, Islamic Rep. of 0.709 5,121 18.6 0.67 1.13 0.05 0.00
99 China 0.706 3,105 11.4 1.49 21.58 0.66 0.79
101 Tunisia 0.703 5,404 35.4 1.65 0.16 0.02 0.00
103 South Africa 0.697 8,488 571.6 3.49 0.68 1.15 1.16
104 El Salvador 0.696 4,036 22.7 1.16 0.10 0.01 0.01
107 Algeria 0.683 4,792 9.1 0.54 0.52 0.01 0.00
108 Vietnam 0.671 1,689 1.8 0.51 1.33 0.01 0.00
109 Indonesia 0.670 2,651 5.8 1.27 3.55 0.06 0.05
111 Syrian Arab Republic 0.660 2,892 23.0 0.52 0.26 0.02 -
119 Egypt 0.623 3,041 8.5 0.65 1.13 0.02 0.01
120 Guatemala 0.619 3,505 16.2 0.92 0.19 0.01 0.00
124 Morocco 0.589 3,305 33.8 2.60 0.47 0.04 0.02
128 India 0.563 2,077 8.6 2.61 16.88 0.39 0.50
130 Zimbabwe 0.555 2,669 27.9 3.92 0.20 0.01 0.01
135 Pakistan 0.522 1,715 2.9 0.66 2.55 0.02 0.01
138 Kenya 0.508 980 9.5 3.48 0.50 0.01 0.00
151 Nigeria 0.439 795 2.7 0.86 1.83 0.02 0.00
HDI (Human development index) – composite index based on life expectancy, educational attainment and standard of living. A HDI below 0.500 reflects low human development and well being.
*Only those 88 countries with premium volumes more than USD 150 million have statistical data provided in Sigma
Source: UNDP (2000), Sigma (1999) and Sigma (2000).
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).
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).
Providing insurance products to the poor using the co-operative structure
Appendix Four
Case study3: Mutual health organisations in Mali
Mutual health organisations (MHOs) and Community-based health insurance schemes (CBHI)) are community and employment-based groupings that have been growing progressively in West, Central, South and East Africa. Whilst these are small and medium sized organisations covering a small fraction of the population, they provide significant contribution to health care access to people in informal and rural sectors. MHOs in Africa usually grow out of mutual aid organisations set up initially to provide members with a range of social security benefits such as funeral grants, birth allowances and retirement benefits . Health care benefits are designed to improve members’ access to quality healthcare by spreading the costs and risks of members’ illness and provide acceptable facilities where ones do not exist. The growth of MHOs have been supported by governments and donor agencies who have recognised the potential for increasing access to health care services to otherwise under-served communities. The contributions MHOs levy on their members are not excessive in relation to average income . Most MHOs have standardised organisational structures that involve members in decision-making and require accounting and transparency from managers (Atim 1998).
In Africa MHOs lack training in administration and management areas including MHO-specific skills needed to deal with providers, check appropriateness of healthcare, ensure accurate costing, set premiums and benefits correctly and support preventive health measures and education. Whilst the provision of existing social security benefits are relatively easy as they require a simple savings scheme, health insurance benefits are more unpredictable and require a certain degree of actuarial expertise. Voluntary schemes in Africa have a penetration hardly rising above fifty percent, due to long waiting periods or no options in paying dues in kind. Provider owned MHOs lack effective independence to ensure that members are obtaining sufficient quality of care. There are other problems facing MHOs in Africa such as morale hazard, adverse selection, costs escalation and fraud. To tackle these issues the MHO relies on its strong solidarity culture to enforce a social control on any potential abuse . MHOs in larger villages operate a system of deductibles, co-payments, mandatory references and ceilings on coverage (Atim 1998, Musau 1999).
Mali is the first to create a nation-level MHO development and support agency, the Union Technique de la Mutalit Malienne (UTM), which is assisted funded by Fonds d’Aide la coopération (FAC) and assisted by FNMF(Mutualité Française). Mali is also the only country in Africa that has developed legislation specifically for mutual organisations (Atim 1998) . In the late 1980s, as with most countries, Mali abandoned the principles of free state welfare provision and introduced a system of user fees. Almost 80% of the country work in the informal and rural sector and do not have access or cannot afford user fees. A special program was put in place to develop mutuals for health with the assistance of Cooperation Francaise and its technical partner FNMF, in collaboration with the UTM and Mali government. There are many types of mutuals in existence in Mali covering different professions, some mutuals do offer funeral cover and a basic life insurance cover, but no insurance on health. The objective of the program is to use the existing solidarity of the mutuals, its member focus and not for profit basis as a cost effective and efficient way to distribute health insurance schemes to the poor.
The mutual for cotton farmers in Nongon was used to test the feasibility of providing health insurance products. In 1994 the mutual successfully created a community health care centre, and in 1998 a contribution of 5 CFA per Kg of cotton was asked as contribution to a health insurance scheme. The strong priority of health as a means to ensure continuos work and continuos income provided a high demand for the scheme amongst the cotton workers. Today the scheme is successfully providing benefits to women for maternity, child benefits up to the age of seven and benefits for men up to 50% of consultation and prescription.
The success of the scheme encouraged UTM with the assistance of FNMF to launch two health guarantee products in Bamako using the mutual networks in existence. The first product covered 60% of expenses relating to doctor’s visit and prescribed drugs, the second product covered 75% of hospitalisation costs. The health provider claims the insured portion of costs directly off the mutual releasing the policyholder from the burden of advance payments. Members are requested to provide identification cards when receiving treatment, there are a select number of healthcare providers that participate in the scheme and an agent is based in each hospital to verify and expedite the claims procedure. UTM negotiates and signs on behalf of all the mutuals to ensure that the best prices for medicines are obtained. This guideline prices list is distributed to each mutual, which is required to check each claim for appropriateness. Every month all health centres and all mutuals send in their data on fees and services to UTM, who then carry out a random sample check for each mutual to detect fraudulent behaviour. To be eligible for participation in the insurance scheme the policyholder must be part of the Association de santé communautaire (ASACO) through registration with a community based health centre. The scheme is reliant on the existing solidarity of the mutuals to gain sufficient numbers and avoid moral hazard, consequently the scheme is voluntary and does not exclude pre-existing conditions. The collection of the required premium is done over a year in small regular payments through a health savings plan, this makes it easier for the policyholder to pay the premium and enforces a minimum waiting period of one year. UTM provides resources to undertake educational workshops and marketing of the scheme to the members of the mutual, UTM is also responsible to ensure that sufficient reinsurance on the scheme is available. FNMF also has an important role to play in supporting the scheme: it provides necessary equipment to rural health care centres to ensure that adequate health care is available, it strengthens the link between the health centres and the mutuals, it undertakes actuarial studies and trains doctors and mutual personnel.
Whilst the scheme is still subsidised by Cooperation Francaise, there are promising signs that the sustainability of the scheme can be achieved and the scheme can be spread to other target areas. However, this is still a long term goal, there are still many difficulties to overcome, such as affordability, education, communication and infrastructure but in the short term the signs are encouraging in respect of the benefits the scheme is providing to the livelihoods of the poor (Samantar 2001).
Source: Kulmie Samantar, Head of International Development, FNMF
Case study3: Mutual health organisations in Mali
Mutual health organisations (MHOs) and Community-based health insurance schemes (CBHI)) are community and employment-based groupings that have been growing progressively in West, Central, South and East Africa. Whilst these are small and medium sized organisations covering a small fraction of the population, they provide significant contribution to health care access to people in informal and rural sectors. MHOs in Africa usually grow out of mutual aid organisations set up initially to provide members with a range of social security benefits such as funeral grants, birth allowances and retirement benefits . Health care benefits are designed to improve members’ access to quality healthcare by spreading the costs and risks of members’ illness and provide acceptable facilities where ones do not exist. The growth of MHOs have been supported by governments and donor agencies who have recognised the potential for increasing access to health care services to otherwise under-served communities. The contributions MHOs levy on their members are not excessive in relation to average income . Most MHOs have standardised organisational structures that involve members in decision-making and require accounting and transparency from managers (Atim 1998).
In Africa MHOs lack training in administration and management areas including MHO-specific skills needed to deal with providers, check appropriateness of healthcare, ensure accurate costing, set premiums and benefits correctly and support preventive health measures and education. Whilst the provision of existing social security benefits are relatively easy as they require a simple savings scheme, health insurance benefits are more unpredictable and require a certain degree of actuarial expertise. Voluntary schemes in Africa have a penetration hardly rising above fifty percent, due to long waiting periods or no options in paying dues in kind. Provider owned MHOs lack effective independence to ensure that members are obtaining sufficient quality of care. There are other problems facing MHOs in Africa such as morale hazard, adverse selection, costs escalation and fraud. To tackle these issues the MHO relies on its strong solidarity culture to enforce a social control on any potential abuse . MHOs in larger villages operate a system of deductibles, co-payments, mandatory references and ceilings on coverage (Atim 1998, Musau 1999).
Mali is the first to create a nation-level MHO development and support agency, the Union Technique de la Mutalit Malienne (UTM), which is assisted funded by Fonds d’Aide la coopération (FAC) and assisted by FNMF(Mutualité Française). Mali is also the only country in Africa that has developed legislation specifically for mutual organisations (Atim 1998) . In the late 1980s, as with most countries, Mali abandoned the principles of free state welfare provision and introduced a system of user fees. Almost 80% of the country work in the informal and rural sector and do not have access or cannot afford user fees. A special program was put in place to develop mutuals for health with the assistance of Cooperation Francaise and its technical partner FNMF, in collaboration with the UTM and Mali government. There are many types of mutuals in existence in Mali covering different professions, some mutuals do offer funeral cover and a basic life insurance cover, but no insurance on health. The objective of the program is to use the existing solidarity of the mutuals, its member focus and not for profit basis as a cost effective and efficient way to distribute health insurance schemes to the poor.
The mutual for cotton farmers in Nongon was used to test the feasibility of providing health insurance products. In 1994 the mutual successfully created a community health care centre, and in 1998 a contribution of 5 CFA per Kg of cotton was asked as contribution to a health insurance scheme. The strong priority of health as a means to ensure continuos work and continuos income provided a high demand for the scheme amongst the cotton workers. Today the scheme is successfully providing benefits to women for maternity, child benefits up to the age of seven and benefits for men up to 50% of consultation and prescription.
The success of the scheme encouraged UTM with the assistance of FNMF to launch two health guarantee products in Bamako using the mutual networks in existence. The first product covered 60% of expenses relating to doctor’s visit and prescribed drugs, the second product covered 75% of hospitalisation costs. The health provider claims the insured portion of costs directly off the mutual releasing the policyholder from the burden of advance payments. Members are requested to provide identification cards when receiving treatment, there are a select number of healthcare providers that participate in the scheme and an agent is based in each hospital to verify and expedite the claims procedure. UTM negotiates and signs on behalf of all the mutuals to ensure that the best prices for medicines are obtained. This guideline prices list is distributed to each mutual, which is required to check each claim for appropriateness. Every month all health centres and all mutuals send in their data on fees and services to UTM, who then carry out a random sample check for each mutual to detect fraudulent behaviour. To be eligible for participation in the insurance scheme the policyholder must be part of the Association de santé communautaire (ASACO) through registration with a community based health centre. The scheme is reliant on the existing solidarity of the mutuals to gain sufficient numbers and avoid moral hazard, consequently the scheme is voluntary and does not exclude pre-existing conditions. The collection of the required premium is done over a year in small regular payments through a health savings plan, this makes it easier for the policyholder to pay the premium and enforces a minimum waiting period of one year. UTM provides resources to undertake educational workshops and marketing of the scheme to the members of the mutual, UTM is also responsible to ensure that sufficient reinsurance on the scheme is available. FNMF also has an important role to play in supporting the scheme: it provides necessary equipment to rural health care centres to ensure that adequate health care is available, it strengthens the link between the health centres and the mutuals, it undertakes actuarial studies and trains doctors and mutual personnel.
Whilst the scheme is still subsidised by Cooperation Francaise, there are promising signs that the sustainability of the scheme can be achieved and the scheme can be spread to other target areas. However, this is still a long term goal, there are still many difficulties to overcome, such as affordability, education, communication and infrastructure but in the short term the signs are encouraging in respect of the benefits the scheme is providing to the livelihoods of the poor (Samantar 2001).
Source: Kulmie Samantar, Head of International Development, FNMF
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