Source: Business Daily Africa.
Original article available here.
NAIROBI, February 14 – Co-operative Insurance Company (CIC) is set to launch a micro-insurance product in the market once hawkers are settled at the newly-constructed Muthurwa Market in Nairobi.
Micro-insurance is modeled along the lines of microfinance institutions that have been successful in West Africa and some Asian countries. It targets, like microfinance, to provide solutions to the small-scale traders through affordable insurance products that ensure the informal sector can survive business shocks.
The CIC product will compensate traders for losses incurred in the course of their businesses, including damages on goods, lost opportunities arising from ill-health and funeral cover in case of death.
“It is about having small clients for big business,” said Mr. David Rono, CIC’s General Manager for Life and Medical. “It helps to end the vicious cycle of poverty experienced by the target group.”
The CIC product is a comprehensive package that includes up to KES 100,000 (USD 1400) in case of death, and a weekly income for two years in case of total disability. The second segment covers funeral expenses of up to KES 30,000 (USD 430) while the third is a medical benefit scheme.
CIC has partnered with the National Hospital Insurance Fund on the medical component which will provide a family package for inpatient services only in private, government and mission hospitals.
CIC estimates premiums will be in the range of KES 10 (USD 0.14) and Sh15 (USD 0.21) a day, between KES 3,650 (USD 52) and KES 5,475 (USD 78) per year, depending on risk evaluation and the extent of benefits sought.
The cover will be available to organised groups of up to 10 people who will exert peer pressure on their members to ensure continuity in payment of premiums.
This borrows heavily from microfinance arrangements in Nigeria where credit is extended to members of small groups, even without bank accounts on the understanding that the groups will prevail upon their members to repay the loans.
Group-based lending has also been successful among women groups in Kenya, where defaulters are isolated from the group. Failure by a member to meet obligations to the lender would normally block the next borrower from accessing lending.
It is this social guarantee that CIC seeks to extend to its micro-insurance model that is set for a pilot at Muthurwa whose success will determine the timing and extent of a countrywide launch.
“We are coming up with options on how to collect the premiums in a way that suits the people we are targeting for the product,” said Mr Rono.
The Muthurwa Market is set for operation in March but CIC will take another two months to set up so that the product is rolled out in May.
The company is betting on demand from an estimated 300,000 hawkers in Nairobi alone.
Farmers and jua kali artisans are also targeted in the scheme that promises to dramatically increase insurance penetration in the country, with the target market estimated at 5 million people under informal employment.
If successful, CIC will become a pioneer in launching micro-insurance scheme in Kenya. The scheme has been seen as a major step in providing low income earners with insurance services.
Apart from the challenge of distributing and collecting premiums, a regulatory framework is yet to be put in place. Insurance Regulatory Authority chief executive Sammy Makove recently said he would be engaging the sector on new approaches to spur the growth of the insurance industry.
A Micro-insurance Bill, complete with tax incentives for low income earners taking insurance products, is expected to be part of that effort. Micro-insurance is currently gaining popularity in countries like Uganda, Malawi, South Africa, Zambia and Nigeria.
In Uganda, Microcare Insurance Limited allows citizens to pay a modest annual premium and are able to enjoy healthcare services.
In Malawi for instance, the Micro Insurance Agency and the World Bank develop weather indexed crop insurance for smallholder farmers in 2005. This has helped most farmers get funding from local banks which used to fret the high risk of crop failure from vagaries such as flooding and drought.
In South Africa, big retailers such as Shoprite, Edcon group, PEP stores and Ellerines provide micro-insurance jointly with insurance companies helping low income earners mitigate various types of risks.
By Steve Mbogo, Business Daily Africa
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