MEET THE BOSS: Interview with Craig Churchill, Head of the International Labour Organization’s (ILO’s) Microinsurance Innovation Facility

Craig Churchill serves as the Chair of the Microinsurance Network and as Senior Technical Officer of the International Labour Organization’s (ILO’s) Social Finance Programme. Headquartered in Geneva, the ILO is the agency of the United Nations responsible for overseeing labour standards. Mr Churchill is also the Team Leader of ILO’s Microinsurance Innovation Facility, where he focuses on the role of financial services that the poor can use to manage risks and reduce their vulnerability.

Mr Churchill has authored and edited over 40 documents on microfinance. He received a Bachelor of Arts in Political Science from Williams College and a Master of Arts in International Development and Social Change from Clark University, both in the US state of Massachusetts.

MicroCapital: Would you please explain the International Labour Organization’s (ILO’s) interest in microinsurance and how this led to the founding of the Microinsurance Innovation Facility?

Craig Churchill: The ILO is interested in microinsurance for a couple of different reasons. The ILO is very keen on finding ways of extending social protection benefits to workers in the informal economy. Often when there are government health schemes or pension schemes, they cover workers in the formal sector but don’t cover workers in the informal sector, so microinsurance is one way of extending social protection benefits to workers in the informal economy. The other interest the ILO has is the social justice element of financial markets. If financial markets are working effectively, are they able to reach and include as many people as possible?

The ILO did a detailed analysis of what we call “good and bad practices,” which resulted in a book a few years ago called Protecting the Poor: A Microinsurance Compendium. The book pulls together key lessons from 25 different case studies that looked at 40 different organizations in some detail. The main thrust of it is that insurance can be provided to low-income people and can be viable under certain circumstances, but (1) most of the products out there weren’t providing particularly good value to the poor and (2) there was a real need to push the envelope, improve the quality of products and create alternative institutional models. The big piece of the analysis was looking at different models for delivering insurance or structuring insurance services. Basically the conclusions were that they all had some limitations, that none of them was necessarily much better than the other. Those findings led us into discussions with the Gates Foundation about creating a facility that would disseminate key lessons, but also stimulate new innovations. That’s how we ended up with the Microinsurance Innovation Facility, which provides grants to organizations on a request for proposal process. We pick the ones that we think are going to be innovative and be able to provide good value to more low-income people and help to create new lessons that will make it possible for more people to have more access to better insurance products.

MC: One of the main objectives of the Facility is that 150 million low-income people will have access to insurance products by the end of 2012. While there is a definite need for risk management tools among the poor, there isn’t necessarily as high of a demand, due to either mistrust or a lack of understanding. What is the Facility doing to increase the demand for microinsurance products?

CC: There are a lot of different challenges in the process of providing insurance to low-income people. Certainly weak demand is one of the key issues that need to be addressed. Several of our grantees are involved in consumer education, three of which are insurance associations. In Colombia, Brazil and Kenya, the insurance associations are experimenting with approaches to raise awareness about insurance for low-income people. We hope that these efforts will move toward creating a better understanding of microinsurance and hopefully stimulate demand.

There are two levels of challenges in terms of demand. One is initial sales and the other is at the renewal time, encouraging people to sign up again. One of the things that a lot of our grantees are doing for the renewal bit is to show that there is some benefit for having insurance even if the policyholder doesn’t experience a need for claim. For example, there is one that we are supporting in India that is working with farmers, providing weather index insurance. This is a particular type of product where there is a huge problem with renewals because if there is no drought then people feel like they have wasted their money. What they are doing is in addition to the insurance coverage they are also trying to provide farmers with weather information and agricultural information details, so they see that there is some benefit to being a part of this insurance scheme even if there isn’t a drought.

MC: What are the main products that the Facility focuses on developing?

CC: There are several different dimensions that we are looking at, but the main way that we categorize our priorities is by what is in the greatest demand by low-income households. The products that come up again and again are usually life insurance and health insurance. Life is a much easier nut to crack, because it is more straightforward. People only die once and it is pretty easy to verify. There is less of a need for us to innovate in life insurance than in health insurance, which is a much more difficult type of insurance to offer and an area on which our next call for proposals will focus.

We have gotten more proposals for health insurance than any other, but we haven’t approved very many grants for various reasons, including the level of innovation and viability. It is important that when our grant is over that they are able to stand on their own in some way. It doesn’t have to be viable in a microfinance sense; it could be viable because they have identified other sources of subsidies. With health microinsurance, there is a strong justification for that. Ideally there would be health coverage provided through or supported by the government as a social protection benefit for all people in that jurisdiction. In a perfect world that would be the case; in an imperfect world we would need to figure out how we can move closer to that ideal and see if there are ways of accessing subsidies to enable the less well-off to be able to access appropriate health care.

MC: Is microinsurance financially sustainable?

CC: There is no doubt that life microinsurance can be viable. There are millions of low-income people who have micro life insurance to show it. Health is much more difficult, and agriculture is also an area where more work is needed in order to have viable microinsurance schemes.

MC: In the case of health microinsurance, for example, there have been cases where hospitals overcharge because they know the client has insurance. How do microinsurance providers control fraud and enforce regulation?

CC: Health insurance has all sorts of challenges, and one of them is certainly provider fraud. In terms of overcharging they typically would enroll or certify certain health care providers, which would agree to certain rates in advance.

Additionally, many insurers will hire doctors to help them monitor health care providers and claims processes and make sure that proper diagnoses are being done and people are being charged appropriately. But even with the best systems, this will be a huge challenge that organizations are working on. Another solution they use is third-party administrators (TPAs), which serve as gatekeepers for the health care providers. If somebody goes and wants to get health care, the doctors need to get preapproval from the TPA to admit the person. The TPA would manage all of the claims and certainly have doctors on staff to help in the monitoring process.

MC: Do you foresee large insurance and reinsurance companies playing a larger role in microinsurance in the future?

CC: One of the things that we find is that insurers aren’t particularly good at reaching this market directly. There are trust issues and cultural gaps, and distribution is just not an area of expertise that insurers have, particularly for this market. So what we encourage them to do is to identify appropriate distribution channels. An example of an appropriate distribution channel would be an organization that could easily reach large numbers of low-income people, one that would already have some sort of financial transactions with them, and one that would have the trust of the population. Microfinance institutions (MFIs) would certainly fall into that category as an appropriate delivery channel, but we are also identifying many others: religious organizations, trade unions, even utility companies and retailers.

In some countries they are now putting insurance on the shelves, and you can buy it at a Carrefour in Colombia or at a retailer in South Africa, and you pay for it at the checkout counter. We have one grantee in India that is experimenting with mom and pop shops as distribution channels. These local retailers have a supplier behind them. Clients pay for their premiums and get an SMS [text message] back verifying that they indeed have paid.

MC: What are the main challenges you see facing the microinsurance industry?

CC: So we have talked about the demand side and the distribution side, which are two major issues. Another big challenge is around information management. Insurers are quite good at managing volumes of data; their whole business is really data management. But they’re used to lots of pieces of information about particular policyholders, and what we are talking about in microinsurance is a very different type of data where you have a little bit of information about lots and lots of people. It is challenging for insurers to make that next leap into the space where we are talking about huge volumes of small premiums.

One of the difficulties with insurance today is that it is very difficult for anybody to understand. There is a need for it to be simplified so that people who are not so confident or trusting of insurance to begin with can start increasing their levels of trust. People must start to believe that the insurer will really pay when they are supposed to and not use some fine print exclusion as a way of not paying claims.

MC: To that end I would imagine that illiteracy must be a big challenge as well. How do organizations educate their illiterate clients?

CC: It varies from country to country, but certainly in some countries it’s a challenge and you find organizations using comic books or videos as a way of explaining it. The advantage of that is also that you communicate the same message every time. If you rely on an army of sales agents, you don’t really know what they’re going to say. If there are ways of standardizing it to have greater control over the information that is communicated to low-income people, hopefully that will help improve the uptake.

MC: What trends do you foresee in microinsurance over the next five to ten years?

CC: Certainly new distribution channels. Organizations that have large numbers of members or access to large numbers of low-income people could start to see insurance as a legitimate service that they could provide to their members or customers. Hopefully greater diversity of distribution would make it possible for more people to have access.

The other thing that we really need to find ways of doing is bringing down the administrative costs and making sure that as great a percentage of the premiums that are paid come back to policyholders in the form of claims. A big challenge is how do we streamline administration and make insurance more affordable and more valuable to low-income workers.

By: Stefanie Rubin, Research Associate

Additional Resources:

International Labour Organization: http://www.ilo.org/global/lang–en/index.htm

International Labour Organization Microinsurance Innovation Facility: http://www.ilo.org/public/english/employment/mifacility/

Protecting the Poor: A Microinsurance Compendium: http://www.munichre-foundation.org/StiftungsWebsite/Projects/Microinsurance/2006Microinsurance/Microinsurance_Compendium.htm

MicroCapital Universe: International Labour Organization: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Labour+Organization+%28ILO%29

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