Final Q&A: Reflections on a Micro-insurance Project

Interview with Ronak Patel, Stanford University

“Our greatest achievement is breaking the myth of feasibility, once you break the myth that selling insurance to this target population is not viable, insurance companies are interested”.

In once sentence can you describe what your HIF-funded project aimed to do and why it is innovative?

The project aimed to measure the impact of disaster micro-insurance on informal businesses for local market recovery, livelihood recovery and to improve resilience after a disaster.

It is innovative for three reasons, design, delivery and purpose:

• Design: It is designed around target populations. While most products are off-the-shelf products pre-designed by insurers, this product was designed around target populations by assessing different needs such as what the micro-insurance needed to cover and what target populations were able to afford.
• Delivery: Most insurers have a product that they market and sell. This product is delivered with a partner-agent model in which community based organisations (CBOs) create a link between informal businesses and insurance companies who wouldn’t normally target this population either because they don’t see value in doing so or they don’t have the capacity to cover the time and effort it requires.  CBOs will not only explain and sell the insurance but may also help process claims. This model was necessary to make this project functional.
• Purpose: it is intended to complement cash based programs that are meant to spur demand by focusing on the supply side of the equation to help the local businesses recover. This can mitigate the risk of inflation with cash based assistance.

Insurers and communities must have a lot of trust in the CBOs, how do those relationship work?

Trust is key to ensuring these relationships are effective particularly between the CBOs and communities, because they are not used to having a product like this or find it difficult to understand how paying in such a small amount can give them such big benefits. Also, many of the populations we were working with had already been victims of a scam so using already existing CBOs that had built social capital through their other programs was essential to develop trust with the beneficiaries.

Developing trust between the CBOs and insurance companies took a lot of meetings and effort in order to help insurers understand that this target population is worth serving and can be a reliable client base.

The final element to build trust was to engage the state disaster management authorities to give the project weight and demonstrate that the state was supporting it. Initially they were involved as invited partners but now they are more engaged and demonstrating to the insurance companies that they are behind this product.

Do CBOs receive payment for their role?

No, right now they are doing it as part of their work and part of the grant is being used to fund this effort but if this project were to go to scale it would have to be built into the premium price of the insurance, which isn’t the case at the moment. The current cost is very low so we could add in a few rupees to each policy to ensure it is a financially viable product.

Were there regulatory hurdles to overcome?

No because there is nothing new about the product it’s just a smaller product for a different target population.

From a user perspective, talk us through how this process works?

We began with focus group discussions with communities to assess their needs, disaster risks, expectations and what they could afford, the wealthier enterprises wanted a more expensive product that covered different types of risk but the insurance companies wanted something universal for a price that was agreeable to everyone.

Awareness was already raised through this formative research phase so we didn’t need to do much in terms of advertising. Then CBOs went out with a pamphlet to explain the product and got people to sign up and pay for annual cover, the CBOs hold all of the policies but we are making photocopies so that beneficiaries have their own copy. Later we asked beneficiaries if they still understood the policy and what it covered and there was positive feedback. The product doesn’t just cover business but homes and life insurance are also built into it. In terms of claims, beneficiaries have a phone number for the insurance company and the CBO can also make a call on their behalf. We haven’t tested it yet as there hasn’t been a significant disaster to activate it.

What are the challenges of selling one fixed price product in terms of the variable value of businesses?

The insurance companies wanted to keep it simple and only offer one product therefore you can only insure yourself up to a certain value, this means there are some businesses on the upper end that don’t cover all of their financial risk and some on the lower end that may have too much coverage, but this is the only way we could make it work.

What were the specific requirements that small businesses wanted cover for? Did they have to meet a criteria to be covered e.g. have a Pucca structure?

We picked these areas because they are at high risk of flooding and cyclones which are extremely high cost disasters, some also wanted fire, burglary, theft etc. cover. One site was particularly challenging because the insurance company didn’t want to cover flooding because the risk would so high they thought it wouldn’t be financially viable, or mobile businesses because of the risk of fraud. We didn’t have these issues in the other sites, anyone could be covered, and in fact the insurance company in Puri has national links and are interested in the potential to scale this product on a national level.

Has there been one type of business owner that has been more engaged than others?

Diverse businesses were engaged from the very beginning when we were designing the product and they became our champions by spreading the word.

In what ways did beneficiaries’ knowledge gap on insurance affect the project and in what ways did you address this knowledge gap?

People struggled to understand how it worked, that is, how a small amount of money would cover them for a disaster, they were used to life insurance and other typical types of insurance but not this type of micro-insurance for their business. They were also worried it was a scam and this was overcome by the CBO’s explaining it not just at their businesses but in their communities and their homes. We think this is a great achievement, in some ways more so than the financial viability, because if people don’t know about or understand your product they won’t buy it.

What are some of the main outcomes?

Even without the impact data we have generated some useful knowledge. An insurance company in one area said that the risk of flooding was so high that they could never afford insurance. However, this project has proved that there can be a product that can support small businesses which may not cover all of their financial risk but will enable them to cope and be resilient without having to take out loans etc. so it is financially viable. The other cool thing is that this is a private sector product that insurance companies can make money on and it is a big market. This project also demonstrates that locally developed financial instruments from the bottom-up may be the most successful means to design products for this population.

If successful in enabling resilience to a disaster, how do you foresee this project could be scaled up? Who would need to be involved?

There are challenges to scaling this such as engaging insurance companies to invest in this market and ensuring that CBOs are present and have the capacity, both technically and in terms of man power, to engage communities.

In Haiti there was a similar project which collapsed due to a catastrophic disaster that wiped out the insurance pool, they realised that if they had to pay everybody then it wasn’t financially viable. We chose three different sites to mitigate this issue and demonstrate to insurance companies that if you spread out the risk then you still have a financially viable product. One problem is that we have a different insurance company in each site, ideally this would be the same company. We also need to ensure that we back stop risks by engaging reinsurance companies (companies that allow insurance companies to buy insurance on their insurance program), national governments or international bodies like the World Bank to be involved so that if there is a catastrophic disaster that can wipe out the whole pool, the insurance companies don’t go under.

Nationally there is good potential to scale, we just need an appropriate product through an insurer and to engage CBOs to facilitate it being rolled out.

Tell us more about the challenges of data collection on such a large scale?

As the demand survey highlighted, the majority of people wanted to sign up and it was very hard to explain to them and even the community based organization why we were doing a randomised control trial (RCT), people just didn’t understand it, eventually we had to tell them that we only had enough insurance for a certain number of beneficiaries and that if it worked the insurance company could expand this to everyone.

We have not yet done a post-disaster impact survey of the innovation and we will have to ensure that we can reach the entire study sample in a timely manner to ensure a snapshot of recovery.

An outstanding question highlighted in the literature review was related to risk taking behaviour, if someone was covered by insurance did this induce them to be less inclined to take risk reduction measures? This is another reason for the RCT trial; to assess not only the impact but whether there will be a difference in risk reduction efforts by those that would opt to purchase insurance.

If someone wanted to carry out research or a project similar to yours, what would be your advice? 

Don’t underestimate the start-up time needed, it is far greater than you expect. You need to find a champion within the insurance companies to help get the right people to sign off the product and see the value in it.

Was there anything unexpected that you learnt, or a use for your project you didn’t expect?

It was a surprise that insurance companies wouldn’t want to insure mobile businesses, but reinforced the idea that microfinance products are often hard adapt for the very poor and most vulnerable segments of society. I also hadn’t anticipated how engaged beneficiaries were and how vital they would be in championing the product. 

Did your understanding of innovation change over the course of the project?

Innovation to me was and ‘idea’ but the innovation that was really required was all the grunt work, that is grinding out the meetings between various stakeholders and finding champions and people that would think outside the box to help move the project forward.

Are you planning to source funding to take this project further? What’s the next step?

We are in the process of seeking other funding from the Millenium Alliance but there is commitment from AIDMI and the insurance companies to do another round even if we don’t get the funding. We are able to forego certain expenses of our own at the moment to ensure that we can operate on a minimal budget temporarily; primarily this involves supporting the CBOs until we can get another round of funding.

The next step is designing questions for the impact survey e.g. how quickly do business and livelihoods recover, the impact on household coping etc. We plan to present our findings at the MunichRE micro-insurance conference in Peru in 2017.

We are also considering doing a tool-kit as a step by step guide to the product and how it works but not sure which audience we will target yet.

What was your experience of working with the HIF? Are there any areas in which we could’ve provided further assistance?

We had good interactions, always encouraging and very easy communication with the HIF team on small and large matters alike.