The world’s poorest struggle to survive day to day, living with almost no safety net. This makes them particularly vulnerable to financial risk. They are one illness or one injury away from losing their businesses or defaulting on a loan. When that happens, families go hungry and children are pulled from school.
Insurance is not something generally available to the poor, who arguably need it most. It is generally viewed as a luxury financial product, and financial institutions have shown little interest in creating insurance products to meet the needs of the poorest. But that is starting to change. Innovators such as MicroEnsure (an organization I first wrote about in a World Politics Review article last summer) are now working to provide small, affordable levels of insurance for the poor to help them better manage financial risk and move out of poverty. It is estimated that since 2009, the number of poor people covered by microinsurance has increased nearly four times, growing from 135 million to almost 500 million people worldwide.
I recently participated in a panel at Women’s World Banking’s 10th Annual Capital Markets Conference with Peter Gross, business development manager in Africa for MicroEnsure. Gross discussed how MicroEnsure is rapidly expanding microinsurance throughout Africa, parts of Asia, and the Caribbean.
MicroEnsure has achieved notable success in Ghana. Of Ghana’s 25 million people, almost 30 percent live below the international poverty line of $2 a day. Insurance has existed for decades in Ghana, but over the past 50 years only about a million Ghanaians had bought life insurance. In just 14 months, MicroEnsure signed up one million life-insurance customers. The organization estimates that 85 percent of those customers did not previously have insurance. The rapid uptake of MicroEnsure’s product can be attributed to their work with local partners, particularly the mobile phone telecommunications company Tigo.
With the help of MicroEnsure, Tigo offers an automated enrollment program: Tigo Family Care Insurance. Tigo customers, in good health and between 18 and 69 years of age, can simply register for this life insurance plan and expand it to include family members. The concept is simple. The more Tigo airtime used the more insurance coverage received. Each month the policy is automatically renewed and either increased or decreased, depending on monthly airtime usage. Not surprisingly, given the financial and childcare burdens women face, this program has been especially popular among women, who make up 63 percent of the subscriber base.
So far, MicroEnsure has paid out roughly 600 life insurance policies through Tigo, with an average payout of $300 per claim. Although this amount does not even cover average funeral costs in the country (which are among the most expensive in the world relative to income), it makes an important contribution, and helps generate awareness and understanding of the value of life insurance. MicroEnsure recognizes that it is building a market: its goal is to expand from simple life insurance to simple health insurance and ultimately to more complex health insurance.
One of its biggest challenges in providing affordable insurance products is in tackling the inefficient cost structures of local insurance companies. Gross estimates that in Ghana, for every $10 an insurance company receives in premiums, it pays out only $2 in claims. The rest of the money goes to brokers’ fees and the insurer’s operating expenses and profit. MicroEnsure recognizes that to provide affordable financial products for the poor, it has to help squeeze costs out of this inefficient business system.
Currently, MicroEnsure works as an insurance broker. Its best partners have been telecommunications companies, such as Tigo in Ghana. But it is also increasingly working with banks to sell “savings-linked” insurance products. Traditionally, the interest paid on savings accounts has not been a sufficiently strong motivator to encourage the poor to maintain and grow savings accounts. However, when savings accounts are paired with insurance policies, the poor tend to save higher amounts. Similar to the Tigo life insurance program, the more money saved in an account, the more insurance is earned. Launched in June 2011 in Ghana in partnership with Women’s World Banking, the scheme increased deposits in participants’ savings accounts from 750,000 Ghanaian Cedis (roughly $399,315) to 2.3 million Ghanaian Cedis (approximately $1,224,500).
Through innovative business models and partnerships, MicroEnsure is expanding access to financial services for the poor. Next up are affordable products providing agriculture and property insurance. To truly transform the industry, it anticipates that it will ultimately have to evolve from being just a broker today to bearing financial risk in providing insurance for the poor. This could put it in head-to-head competition with some of its insurance partners, although traditional companies have thus far shown little interest in serving MicroEnsure’s poor clientele. As it expands in emerging markets around the world, MicroEnsure is an innovative organization to watch.