PROVISION OF MICROINSURANCE TO THE LOW INCOME POPULATION

1. PROVISION OF MICROINSURANCE TO THE LOW INCOME POPULATION PRESENTED BY MR. NELSON KURIA , OGW MANAGING DIRECTOR THE CO-OPERATIVE INSURANCE COMPANY OF KENYA LTD Wednesday July 11, 2007

2. Agenda Introduction & Background Strategies for sustainable micro insurance business Contribution of micro insurance to MDGs Micro insurance case studies Obstacles in providing microinsurance Learning Experience in designing and administering micro insurance Conclusions

3. Introduction • CIC Kenya was established in 1978 and is owned by the co-operative movement • CIC Kenya is number 9 in terms of market share out of 43 insurance companies • It is the market leader in group life and micro insurance in Kenya and is virtually the only surviving co-operative insurer in Africa

4. Background CIC Kenya’s close relationship with the cooperative movement has enabled the company to develop suitable insurance products and marketing structures for co-operatives and has replicated this expertise and experience to the microfinance and small and micro enterprises Currently CIC Kenya insures slightly over a million co-operative members and about 260,000 clients of microfinance institutions

5. Background continued Microinsurance is highly underdeveloped because commercial insurers have for a long time considered the low income groups not viable sources of insurance business due to high transaction costs, moral hazard, adverse selection, fraud, low retention, lack of Infrastructure, unsustainability of the group. CIC Kenya in working with the co-operative movement and MFIs in the development of low cost insurance products for their clients is progressively helping to correct this perception in Kenya

6. Strategies for sustainable micro insurance business • Use of partner agent model to distribute micro insurance linked to microfinance clients • Investing in research and data analysis to understand the risk involved is fundamental • Use of information technology for data management and cost reduction in administration • Clients education • Synergy as a result of exchanges with other partners in in terms of knowledge , administrative systems and technical capacity

7. Contribution of micro insurance to Millennium Develoment Goals • Eradication of extreme poverty and hunger through the provision of micro insurance products such as weather index insurance for farmers • Reduction of child mortality, improvement of maternal heath and combating HIV/AIDS , malaria and other diseases through the provision of micro insurance products such as health insurances for families and education • Ensure environmental sustainability through risk management advice and insurance

8. Case study 1: Low ticket Insurance package for the co-operatives in Kenya Apart from the traditional group credit life insurance which covers members of co-operative movement in case of death , permanent disability and funeral expenses, CIC has recently developed a low ticket insurance package for the clients of the Co-operative Bank of Kenya to provide the following benefits Insured Loan balance on death and total permanent disability benefits and a funeral expense rider Fixed insured amount on Group Personal Accident fordeath & total permanent disability benefits Outstanding loans amount at time of loss in case of Fire/burglary claims Currently CIC insures over 75,000 clients of Co-operative Bank of Kenya

9. Successes from CIC Kenya Perspective Generally microinsurance products have proven profitable with an average loss ratio ( 2003 -2007) of 20 % and are being replicated to provide coverage to other low income groups in Kenya including members of the informal sector where the majority of the population lies. It is important to note that only 25 % of the low income group in Kenya have access to financial services. Micro insurance is therefore assisting in demystifying insurance as a preserve of the rich and will facilitate the acceptance of insurance as an integral tool in reducing poor people’s vulnerability to various risks. This will consequently enable the poor to break out of the vicious circle of poverty

10. Successes • CIC has successfully implemented these innovative insurance products where co-operative bank offer credit facilities through the partner –agent model. • CIC is now is applying the same model with other banks and microfinance institutions to accelerate the growth of micro insurance packages to low income households in Kenya

11. Successes • CIC aims to expand the provision of low ticket insurance products and services to the low income households in Kenya while at the same time being competitive in providing quality insurance products for higher income groups. • To this end, CIC places dual emphasis on financial sustainability and operational efficiency by using Information Communication Technology to enhance productivity and cost reduction and also employing innovative risk mitigation techniques.

12. Case study 2: Micro health Insurance This is a competitively priced mass medical insurance product offering comprehensive in-hospital benefits to members MFIs. The cover also offers loyalty benefits for loyal customers to ensure long term relationship. With an annual premium of US$ 40, a family of five members would enjoy a shared inpatient limit of US$ 7,000 Specific chronic illness benefits capped to a limit for Diabetes, Hypertension, Asthma and HIV/AIDS Loyalty Benefits available after one to three years of coverage are: Family planning:. Uterine Fibroids Removal of the prostate: Removal of gall or kidney stonesMaternity Cover Organ transplant

13. Strategic Partnerships CIC Insurance ( insurer) is responsible for product development and administration Ecumenical Christian Loan Fund Kenya, KADET of World Vision, Faulu (K) - (MFIs) distribute the medical insurance product to their clients and give them premium loans to purchase cover Mission Hospitals , low cost private hospitals and private wings of government hospitals provide quality and affordable medical services to the clients

14. Challenges in providing Micro health Insurance • This product has been unprofitable and has recently been reviewed to make it sustainable • Lack of good will by the MFIs to implement the underwriting requirements as initially agreed upon resulting in gross anti-selection • Lack of enough mission and other private quality low-cost hospitals in some areas hence hindering marketing efforts and poor service to MFI clients • Lack of technical skills by MFIs staff to market micro health insurance

15. Challenges - continued • Delay and errors in printing photo cards by service providers hence worsening the negative perception about insurance thus hindering marketing efforts by MFs staff • Inadequate funds to develop a suitable IT system for this scheme and for promotion and education

16. Obstacles in providing microinsurance from the Supply Side • Low-income persons are vulnerable to risks, but so far insurance has been accessible only to a few, often through informal or mutual schemes. • In most countries, commercial insurers have largely stayed away from the low-income market, mainly because they consider the low income groups not viable sources of insurance business due to high transaction costs, moral hazard, adverse selection, fraud, low retention, lack of quality data, unsustainability of the group. • No systematic methods to reach informal workers, poor cannot afford full cost of insurance, insufficient government resources to cover recurring expenditure • High volatility due to lack of reinsurance back up • Inadequate technical and actuarial expertise and experience in this new area

17. Obstacles in providing microinsurance from the demand Side • Anti- selection • Lack of effective and efficient simple processes relevant to their specific risks • High level of Scepticism about insurance • Lack of Insurance Knowledge • Social Insurance substitutes • Unaffordable premium rates

18. Learning Experience in designing and administering microinsurance • Cost Reduction through the use of information technology • Risk Reduction through the use of insurance packages and strict underwriting requirement of compulsory membership to reduce anti-selection • Culture of innovation through visionary leadership and management style that promotes staff development and innovation by inculcating the value of continuous improvement and innovation • Linkages/ Strategic Partnerships in products design and their distribution to members/clients

19. Learning Experience- continued Reduction of anti selection by offering group insurance packages /policies on compulsory basis and providing them as integrated services with other existing financial services. This helps to protect the loan portfolio of the co-operatives and MFIs by reducing their exposure to default . Members and Clients buy insurance based on the confidence arising out of familiarity with the financial institutions. Standardization of micro insurance for MFIs clients to make it easy to sell and administer Scepticism about insurance is high and insurance knowledge of low income households very low

20. Conclusions CIC’s insurance packages for co-operative and microfinance institutions in general have proven profitable over the years hence sustainable save for micro health. CIC innovative and competitive products have become known through out the co-operative movement and microfinance Institutions in Kenya and this is rapidly increasing among other communal groups like churches. Micro-insurance has already proven a marketable and viable product and thus CIC Insurance is keen to replicate the piloted micro insurance packages to other MFIs across the country. By targeting a homogenous segment, the inherent product risk will be spread over a wider group, enabling CIC Insurance to provide an attractively priced product.

21. Conclusions – continued • We have seen that partnerships between CIC and strategic partners are very crucial in the development of the micro insurance policies for low income households a market that has been neglected by commercial insures. • In particular, support from and collaboration with technical partners and donor agencies would enhance CIC’s capacity in designing and pricing appropriate micro insurance products which are relevant and affordable to low income people. • This in turn will enable low income people to access financial services with higher overall protection against life, health and property risks, hence benefiting from a specific income creating opportunity..