Back in 2002, I found myself in rural Zambia sitting with a group of borrowers trying desperately to understand their lives; as it was my first encounter with microcredit, the ladies were getting increasingly frustrated with my ignorance. One of them took pity and shuffled off to her hut coming back with a “Chutes and Ladders” board (also known as “Snakes and Ladders”). She explained to me that she was trying to work her way out of poverty, which she likened to moving up the board. The loans she got were like the ladders, accelerating her progress.
As we went around the group, the ladies told me of the risks they faced and how disasters, medical bills, and funerals caused them to sell assets or spend hard won savings, returning them back into poverty much as the chutes (or snakes) cause you to slip down the board. They asked me if it was possible to put in place a safety net that would move up underneath them as they worked their way out of poverty so that when disaster strikes, they would not fall all the way back to the bottom.
That meeting changed the course of my life and led to the creation that year of what is now MicroEnsure, a leading provider of insurance to over 4 million low income people.
The first task in 2002 was simply to understand the supply and demand dynamics: which insurable risks did the poor face (and want to cover) and what products would insurers provide. The easiest way to do this was from within a microfinance network, and we were delighted to be housed within Opportunity International. After several years of developing products for Opportunity’s borrowers, it became clear that we were limiting our potential scale and the range of products that we could offer; we needed a way to pay for an organisation that would tackle the challenges of providing a wide range of products to a wide range of clients. The four challenges we set out to tackle were as follows:
- Simple products with efficient processes.
- An educated sales force and clients who understood the products.
- Efficient back office capability and IT to collect, store, and report on key client data.
- The ability to pay claims quickly as this has the biggest impact on demand.
MicroEnsure was established as an insurance broker because it was the fastest and cheapest regulated structure available and provided a revenue stream via commissions, but we soon realised that the local insurers we represented were not always able to offer the products we wanted or the claims turnaround times our clients demanded. Our response was to establish a reinsurance vehicle so that we could simplify the products and pay claims within days.
As we branched out into health insurance, we realised that many countries lacked the infrastructure to form networks of hospitals or to adjudicate complex health claims, so we created in-house capability called a “Third Party Administrator” (TPA) to do health claims. Finally, we realised that some products such as weather index require significant R&D pre-launch, and the only way to do this sustainably is as a consultant pre-launch and as a broker post-launch. So, today MicroEnsure is a broker, reinsurer, TPA, and consultant serving 4 million and growing in excess of 200,000 new clients every month.
Microinsurance is all about partnership, and perhaps the most important partnership is with the distributor of the products. Like most microinsurance providers, we initially only worked with microfinance lenders, packaging our basic life insurance products alongside the loans, but we soon started to work with a wider range of distributors including VSLAs, SACCOs, church groups, and other retailers. We discovered that in order to be a successful distributor you need a strong brand that is trusted by the poor, accessible points of sale, and the ability to transact cash to cover premiums and claims. So far, the most widespread distributors remain microfinance companies—although it’s great to see a wider range of products be embedded into not only the loan but also increasingly being used as an incentive to get savers to open accounts and increase balances. Mobile phone companies such as Tigo and MTN are also starting to be used to distribute insurance to the mass market.
In our experience, the most successful model is to introduce insurance as a loyalty program. The telephone company (“telco”) is willing to pay the premiums on behalf of its subscribers so long as doing so increases loyalty and the average amount of airtime that the subscribers purchase. It’s a true win-win. The subscriber gets free insurance and the telco increases its revenue. During 2011, more than 1 million people gained access to insurance for the first time through Tigo using this model. Having created a new market, the telco is then able to sell additional products to this market, and the take-up rate from consumers that have experienced the benefits of insurance are much higher than from a “cold sell”.
In 2011, Swiss Re estimated that perhaps as many as 4 billion people had no access to any insurance products. Over the last few months, however, it has started to emerge that, according to the ILO, perhaps as many as 500 million people now have access to insurance. Many of these have access only to basic credit life products—but it’s a great start. Providing the remaining 3.5 billion people with a safety net will be the work for many hands, but I feel confident it will happen in our lifetimes!
Over the last decade, I have often wondered how many emergencies that Zambian lady has had to face and overcome and whether the safety nets that we put in place meet with her approval. One day I hope to return to ask her and to share with her that the challenge she set me has been taken seriously and resulted in millions of people having access to protection from life’s storms.
—Richard Leftley, President and CEO, MicroEnsure, UK, http://www.microensure.com/
• MicroEnsure blog: http://www.microensure.com/resources-blog.asp
• ILO, Protecting the poor: A microinsurance compendium, Volume II (April 10, 2012)
• “An interview with ILO’s Craig Churchill on the expansion of Microinsurance coverage”