MICROFINANCE PAPER WRAP-UP: “Pathways Towards Greater Impact: Better Microinsurance Models, Products and Processes for MFIs;” by Craig Churchill, Aparna Dalal and Josh Ling; published by International Labour Organization, Microinsurance Innovation Facility

By Craig Churchill, Aparna Dalal and Josh Ling; published by International Labour Organization, Microinsurance Innovation Facility; 2013; 8 pages; available at: http://www.ilo.org/public/english/employment/mifacility/download/brnote15_en.pdf

This paper examines the challenges faced by microfinance institutions (MFIs) that provide microinsurance products to low-income individuals and businesses. The authors explore the evolution of microinsurance products, the spectrum of current products and services, and ways MFIs may improve their microinsurance products.

According to the authors, MFIs can be effective channels for the distribution of microinsurance to poor people. Many MFIs have begun to offer microinsurance products as part of their product portfolio, as these services have the potential to increase the profitability of the MFI as well as its social agenda. The paper presents a review of data available on the MIX Market database, which is a service of the US-based nonprofit Microfinance Information Exchange (MIX), showing that 70 percent of the 451 MFIs that reported social performance data to MIX offered some form of microinsurance. Half of these 451 MFIs offered some type of voluntary cover. According to the authors, these findings indicate that “MFIs are evolving beyond basic credit life insurance.”

The paper presents the following recommendations for how MFIs that offer microinsurance products might improve their business: (1) study market needs and consumer preferences; (2) offer savings-linked cover which can provide more protection over a longer term than credit-linked cover; (3) make mandatory cover valuable and leverage this value into increased customer retention and volume through educational programs; (4) proactively develop product offerings that are aligned with institutional strategy and core operations; (5) focus customer claims processing on efficiency and customer value; (6) incorporate risk prevention, risk preparation and risk protection in product development and business strategy; (7) increase capacity by optimizing personnel and procedural efficiency; (8) continuously monitor performance including client value, product profitability and client retention while focusing on leveraging success into better terms with insurance companies.

The authors conclude that MFIs that are looking to develop microinsurance product offerings should consider beginning with credit life insurance. As the organization’s microinsurance programs become more developed, MFIs should consider expanding into savings-linked cover and riders for credit-linked insurance or voluntary insurance for the general public. The authors acknowledge that offering these services may incur additional risk for MFIs and pose operational challenges including restructuring the roles and responsibilities of field staff and maintaining a streamlined claims process.

However, the authors suggest that MFIs that are successful in dealing with these additional risks and challenges will help to create a “foundation for an insurance culture in low-income communities that will enable the poor to manage risks more efficiently and thereby make a valuable contribution to breaking the vicious cycle of poverty.” The authors conclude that microinsurance has “the potential to improve the health and welfare of low-income households, and consequently enhance the social and financial performance of the MFI, especially when considered as a component of a broader risk management framework.”

By Makai McClintock, Research Associate

Sources and Additional Resources

“Pathways Towards Greater Impact: Better Microinsurance Models, Products and Processes for MFIs;” by Craig Churchill, Aparna Dalal and Josh Ling; published by International Labour Organization, Microinsurance Innovation Facility; 2013; 8 pages; available at:
http://www.ilo.org/public/english/employment/mifacility/download/brnote15_en.pdf

MicroCapital story: “MICROCAPITAL BRIEF: Microinsurance Innovation Facility: Market Reaches 500m People, 60% in India”; published April 30th, 2012; https://www.microcapital.org/microcapital-brief-microinsurance-innovation-facility-market-reaches-500m-people-60-in-india/

MicroCapital story: “MICROFINANCE PUBLICATION ROUND-UP: Microinsurance and Child Labor; Benin Poverty Scorecard; Effect of Recession on Microcredit Sector”; published April 10th, 2012; https://www.microcapital.org/microfinance-publication-round-up-microinsurance-and-child-labor-benin-poverty-scorecard-effect-of-recession-on-microcredit-sector/

MicroCapital story: “MICROFINANCE PUBLICATION ROUND-UP: Microinsurance Donor Trends; Health Insurance Participation in Kenya; Risk Preference and Demand for Insurance Under Price Uncertainty in Cote d’Ivoire”; published April 6th, 2012; https://www.microcapital.org/microfinance-publication-round-up-microinsurance-donor-trends-health-insurance-participation-in-kenya-risk-preference-and-demand-for-insurance-under-price-uncertainty-in-cote-divoire/

MicroCapital story: “MICROFINANCE PUBLICATION ROUND-UP: Indian Microfinance, Treating Colombian Clients with Respect, and Expanding Microinsurance”; published March 19th, 2012; https://www.microcapital.org/microfinance-publication-round-up-indian-microfinance-treating-colombian-clients-with-respect-and-expanding-microinsurance/

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

MicroCapital Universe Profile: International Labour Organization’s (ILO) Microinsurance Innovation Facility (MIF)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=International+Labour+Organization%E2%80%99s+%28ILO%29+Microinsurance+Innovation+Facility

MicroCapital Universe Profile: Microfinance Information Exchange (MIX)
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microfinance+Information+Exchange+%28MIX%29

Do you know that MicroCapital publishes the MicroCapital Monitor newspaper each month? Find out more at https://www.microcapital.org/products-page/

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