Pawnbrokers and microinsurance

Interesting article on why people use pawnbrokers in the Philippines. They are convenient, very simple and quick, require no form filling and are highly tangible.

A thought:

The article mentions the possibility of selling microinsurance through pawnbrokers. It is an interesting marketing idea to present people with the possibility of protecting themselves in advance just at the point at which financial emergencies are most vivid in their mind - when they are dealing with one.

How can microinsurance be made to more closely resemble the advantages of the pawnbroker? Could the pawnbroker be the one to distribute the claims cash at the time of need, to encourage people to see that insurance provides cash for them in emergencies in a similar way to a pawnbroker? Could clients be offered reduced interest on loans taken with the pawnbroker in the event that an emergency is not covered by the insurance?

P.S. Does anyone know of any microinsurance currently being sold through pawnbrokers?

Reflections on Dar

After a week barely leaving the hotel in Dar es Salaam during daylight, I have witnessed one Miss Tanzania contest, one karaoke night at the beach and four days of microinsurance geekery - first the Microinsurance Innovation Facility's Innovation Forum and then the 8th International Microinsurance Conference.

Some brilliant presentations on micro-Takaful and health microinsurance come to mind, but of course the most inspiring parts came in the discussions between presentations. In particular, the drive for microinsurance from some very different perspectives - microinsurance as just one part of making insurance sustainable... microinsurance as a financing tool for health or agriculture purposes... microinsurance as an intriguing business venture... "I don't want to call it microinsurance" insurance for the mass market...

I was struck by the younger generation at the conference - lots of keen, clever and quite quirky minds from different fields. The next decade should be an interesting one in this industry.

P.S. I leave you with a photo from my one outing in Tanzania in daylight!

What can insurers learn from microinsurance?

Watching this video from Faisel Rahman, the founder of FairFinance, the first microcredit project in the UK, I was impressed by his vision to change personal finance for everyone by starting afresh with those who are currently excluded. 

In the same way microinsurance has offered insurers (and many new to the game) to start from the beginning, and from a whole new starting point, with social as well as business objectives - developing and monitoring products by asking "does what we are doing actually make our clients lives better?"

Microinsurance has brought new distribution channels, improved technology and the promise of new markets to conventional insurance. But its "client value" approach could also be a powerful perspective for conventional insurance.

Starting with what you've got

"But why would I want to see you again? I already know what you look like."

An eight year old's reply when I told her that it was the last session I would spend working on Maths with her.

An (almost) cute example of children's lack of sentimentality and tendency to take things literally, but, also, kind of true...

I'd visited her school in East London once a week for two terms as part of a CSR programme, and I had loved it. I'd made a connection with the area I worked in and I had left the office and done something different for a couple of hours a week.

Had the pupil I was working with improved in her Maths? I'm not convinced.
Had she enjoyed it? Yes, I think so.
Would it make much difference in her life? Probably not.

There is nothing wrong with these kind of CSR programmes. They do a bit of good and no harm. The problem is that they miss the point. Most companies have so much at their disposal; I was working with top finance, risk and management professionals, not teachers.

Companies should start by thinking about how they can make the most difference with what they already have: turning their existing skills to a social purpose...

Maybe start with what you've got and go micro?

Thinking about distrust

Clients' risk aversion is a double edged sword for microinsurers. On the one hand, we would expect the high levels of risk aversion often shown by poor people to push them towards seeking ways to manage risks, like insurance. On the other hand, for our clients microinsurance itself is a risk.

The truth is that for most poor people insurance is new and untested. Where they do have experience it is often negative. Insurance is difficult to understand and the protection is always limited to certain conditions.

How can a poor person be sure that insurance is the best way to deal with their risks? And even if they are convinced in principle, how can they be sure that the insurance company will still be around and will honour its promises?

It's easy to lament this lack of trust and try to change this 'wrong' mindset. But we need to start off by recognising that this attitude is legitimate, even sensible. Taking insurance is a risk and our clients do well to weigh the pros and cons carefully.

Watching claims stories

Finally had the chance to delve through Allianz's microinsurance claims story videos, interviews with nine of Allianz's microinsurance clients who have made claims, selected at random.

The results were varied and interesting. This is something microfinance does far to little of: showing the results of our efforts as nuanced, worthwhile, but not miraculous.

I particularly enjoyed one woman's insistence that her family would of course have managed without the insurance - a good reminder that surviving disaster is something the poor must achieve regularly without insurance!

Three thoughts:

1) The claimants spoke again and again of insurance protection in the context of family and community. This is their primary support network and the starting point of their understanding: good microinsurance experiences were compared to the treatment you would expect from your family; the main alternative to insurance was support from friends and family; and relief was shown at not having to depend on them. This has implications for the way the poor use microinsurance and the way we should sell and explain it.

2) Even among those who had experienced the benefits of insurance, understanding was often remarkably low. One man who was obviously very grateful for his payment had only actually been reminded of it by accident a considerable time after the death of his wife! As Martin Hintz at Allianz said, "What strikes me in these videos is that insurance awareness is still low. People may already have a policy. And still they often don’t fully understand how insurance works and who their insurer is. They don’t feel confident enough to rely on insurance... So customer education is definitely is something we need to work on.”

3) Finally, I was reminded of the importance of keeping promises; especially when it comes to the amount of time it takes to pay a claim. One claimant was very pleased that her claim was paid within three months. That didn't seem all that quick to me, but what stood out was her satisfaction that the person from the insurance company had told her that everything would be sorted in three months and that was exactly what happened. Perhaps the insurers who will win the trust of their clients in the end won't be those who pay most quickly, but those who pay most consistently within a fairly quick time frame.

P.S. Great article today on why mobile money needs to be persuading customers to put money in, not just out from Ignacio Mas at CGAP. Also finished reading Poor Economics and still think you should read it!

It's good for you, I promise

Mobile phones are a great development tool, but their meteoric rise in Africa and Asia isn't because of their development portential, but because they are useful and exciting. To most people insurance isn't exciting and isn't even obviously useful. For insurers demand is more difficult.

The usual answer is client education; trying to make people realise insurance is good for them. But we don't usually do stuff because it's good for us. We do something because it's fun or obviously useful or because our parents taught us to, our friends do it or our sister swears by it.

At the moment I'm reading Poor Economics by Abhijit Banerjee and Esther Duflo. If you haven't read it, I recommend it. The book explores many examples in development which show that teaching people something is good for them isn't enough.

Things that are good for us need to become a norm, a habit. And this is where free and compulsory microinsurance schemes come into their own. They don't always offer the best client value, but at their best they provide a reliable and positive experience, make insurance a norm and pave the way for more valuable products.

All Q and no A

I have a question that has been floating around my head for a while, and it goes something like this:

Should microinsurance (or any other development tool for that matter) be trying to do the best thing it might be able to achieve or should it be focusing on the problem it is best at solving?

Let’s take the two ends of the spectrum. On the one hand most microinsurance programs start off with credit life. Microinsurance is a very good fit for reducing defaults, making microfinance safer for borrowers and expanding the reach of microfinance. But it’s not the most exciting proposition, and these programs are often criticized as they are compulsory and in some cases benefit lending organizations more than borrowers.

At the other end, health insurance is the type of microinsurance most sought after by low income clients. Protecting poor people against the terrible risks related to health is probably the best thing microinsurance might be able to achieve. But it is difficult, often piecemeal and, crucially, there are other methods available.

Is microinsurance the best answer to the question of providing affordable and quality health care to poor people? I don’t know the answer. But sometimes it seems to me that it is easy as a microinsurance practitioner to start with our tool and ask how we can use it to address the most pressing problems.

Would it be a better use of our resources and our tool to apply it where it can make the most difference, to the problem it best fits?

Insuring really small aliens

Insurers like to push the boundaries of what they can insure. The other day I was chatting with someone who was once involved in designing alien abduction insurance. He has now moved on from his feckless youth to become a leading figure in the microinsurance world, and certainly its most entertaining.

When people try to guess what microinsurance is, nine times out of ten they say something about insuring small things, and they're certainly on the right track.Having gone as big as possible and as weird as possible, the time came for insurers to go smaller. In fact there was a market worth around 40 billion dollars that they were completely ignoring.

I'm sorry to tell you microinsurance isn't about insuring really small aliens. It's actually much more exciting (promise).

Microinsurance is all about insuring small risks, i.e. charging a small amount to insure something that is worth a small amount financially. But that's misleading, because the reason that microinsurance matters is that it insures things that are very valuable to its clients. Microinsurance covers the lives, livelihoods and assets of poor people; anything from insuring a couple of acres of crops against a hurricane to insuring a market stall in case it is burnt down.

The idea is to offer greater stability to a poor person's life: a safety net to support them through crises.

Living in a society with advanced social protection, insurance provision and relative wealth, a crisis is usually a setback. For many of the world's poor their vulnerability to crisis can be critical.

This is the starting point for microinsurance. In reality it can be both more and less than a safety net.