Partner Organization: Impact Insurance Facility of the International Labour Organization (ILO)

Reaching the mass insurance market: where to start when going digital

Posted on by 5iveafrica

For insurers to serve a new type of client at scale they must change their modus operandi. The high costs associated with conventional insurance cannot be absorbed by low premium products. This means that existing structures need to be adapted to serve the low to middle-income mass market.

One key to success lies in digitization, which can be used to automate existing (often paper-based) processes. Going digital has obvious benefits: minimising expenses, reducing the scope of human error, improving efficiency and achieving scale. But, how can insurers begin to make this shift?

Working with our partner Britam in Kenya, we have seen one route to becoming a digitally-driven insurer: start with strategic process mapping.

So what does a strategic approach to process mapping look like? Process mapping involves creating a flow chart to capture every step in a process. This is then analysed to see how the process could be redesigned. Process mapping can both reveal opportunities for automation and help manage the internal change required to put it into action.

The strategic element of process mapping lies in identifying how new processes can achieve greater efficiency and also help improve the client’s experience. The ILO’s Impact Insurance Facility advocates human-centred design, which focuses on integrating the experience of the target group into product design and delivery. To improve the client’s experience, we have found that careful analysis is needed both of client interactions and back-end processes.

To illustrate, let’s take a simple example. At Britam, one of the team’s many tasks was to redesign the member information gathering process at enrolment to cut data entry and courier costs. The team started by looking at the systems and resources in place to capture data, and the experience of internal and external stakeholders interacting with the system. Careful analysis from both “outside-in” and “inside-out” uncovered pitfalls and opportunities for automation of members’ enrolment data gathering, such as customers processing their own data through an automated platform.

However, there are limits to automation, including limited client access to internet and smart phones. This problem extends to partner organisations, who are in many for automated processes. For example, the mission hospitals who work with Britam prefer paper claims submission.

Furthermore, there may be initial teething problems with automation, especially when it is only partial and still relies on a degree of human intervention. For example and as illustrated by the graph, after making significant reductions in claims processing times through process automation, Britam found that the processing time started to increase again due to staff constraints. This highlighted the need to support process changes with training or new staffing structures.

Our change management projects have repeatedly shown that digitization success does not lie solely in introducing technology, but in how people are placed to handle this change. Understanding what it takes to encourage and sustain behavioural change, both internally and externally, is key to change management and to reaping the rewards of going digital.

This blog is part of a joint series between the ILO’s Impact Insurance Facility and FSD Africa. The series explores practical solutions to manage change within insurance providers.

10th consultative forum on “scaling up agricultural index insurance in Africa: building disaster resilience of smallholder farmer

Posted on by TIMOTHYRADIER

On 24 and 25 May 2017, insurance supervisory authorities, insurance practitioners, policymakers and development partners gathered in Kampala, Uganda, for the 10th Consultative Forum to discuss how to scale up agricultural index insurance for smallholder farmers. The event was co-organised by African Insurance Organisation, the International Association of Insurance Supervisors (IAIS), the Access to Insurance Initiative (A2ii) and the Microinsurance Network (MIN); and live streaming of the event was provided by FSD Africa in partnership with Cenfri under their risk, remittance and integrity (RRI) programme.

Index insurance is recognised by policymakers as an important tool to build resilience among smallholder farmers, who dominate the agricultural landscape in Africa, as it overcomes some of the traditional microinsurance insurance challenges to reaching lower-income, rural individuals.

The forum focused on the limitations of index insurance as a stand-alone solution to agricultural related risks and the move to using it as part of a broader portfolio of risk management interventions to mitigate agricultural risks and improve food security.

The potential of index-based insurance is derived from its innovative business model, which relies on parameters set by existing weather or yield data to trigger claim pay-outs, rather than indemnity payments. If effectively implemented, this can reduce moral hazard, limit adverse selection and reduce the cost of distribution, as no risk assessment is required. However, to date, index insurance has not lived up to this promise and is struggling to achieve scale. Where some scale has been achieved, government or donors have largely been involved – by subsidising premiums, providing grants to cover operational costs or forming risk-sharing agreements to cap losses.

Speakers and participants at the Consultative Forum noted several constraints to the development and implementation of index insurance, which have hindered its progress. For instance, Mr Protazio Sande from the Insurance Regulatory Authority of Uganda and Isaac Magina from Swiss Re noted the need for more available, reliable data that can be used to accurately predict risk.

The lack of appropriate data increases the likelihood that there will be a mismatch between the loss experienced by smallholder farmers from the event and the claim pay-out to the smallholder farmer triggered by the index (commonly known as “basis risk”).

If basis risk is too large, there is a lower likelihood that the smallholder farmers will receive a pay-out. Miguel Solana from the ILO’s Impact Insurance Facility has likened this to a lottery where farmers are betting on a risk they are worried they may experience. If basis risk is too large, then this creates more uncertainty and risk for farmers about whether they will be covered if an event occurs. This undermines their ability to manage the risk, in turn limiting the value of the insurance.

Further, these technical details are complicated and make an already difficult task of explaining insurance to farmers even more difficult. While these details are important for providers and regulators to understand, it is critical that we “don’t lose sight of the customer in technical details,” according to Joseph Owuor from the Insurance Regulatory Authority of Kenya, who also spoke at the event.

Index insurance also remains relatively expensive to provide, reaching as high as 12% to 20% of the insured value in some cases, averaging out at around 5% for most schemes. One of the main drivers of these costs is the upfront investment needed to:

  • Coordinate different stakeholders
  • Develop channels to effectively reach rural and low-income farmers
  • Build sufficient awareness and understanding among the target market to ensure take-up

At the same time, the lack of known market demand and the need to prove the value of the concept to farmers create uncertainty for claim pay-outs, leading to high claim ratios. These are critical obstacles to address.

Most schemes thus require donor or government support (in the form of upfront investment, subsidies or risk-sharing agreements) to get off the ground, but long-term government support and buy-in is often uncertain.

This requires many stakeholders from an array of fields to collaborate, with Peter Wrede from the World Bank likening it to an “orchestra” to make it work.

It also leaves some unanswered questions. For instance:

  • Does agricultural index insurance deliver value to clients? Under which circumstances does it do so?
  • Can certain segments of clients be more sustainably served through index insurance?

Whether these challenges are addressed, it is important to note that index insurance is only one of a range of tools that can support a broader agricultural risk management strategy. For instance, index insurance may only be viable for certain farming segments; and other segments will need other tools to help build their resilience. Further, such a strategy could also target other actors in the space with insurance, such as value chain providers like MFIs or agro-processors who extend credit to farmers.

Going forward, FSD Africa – in partnership with Cenfri – will conduct research to establish a knowledge base on how index insurance fits within a broader risk management strategy and convene the FSD network’s  Community of Practice to help market actors address challenges.

If you’re interested in learning more about the work under the FSD Africa and Cenfri partnership, please contact:

Mia Thom

Technical Director

Cenfri

miathom@cenfri.org

Twitter: @thommia

Website: cenfri.org

Juliet Munro

Director – Inclusive Finance

FSD Africa

juliet@fsdafrica.org

Twitter: @juliet_munro

Website: fsdafrica.org

The growth of inclusive insurance in Zambia

To reduce the vulnerability of poor women and men, FSD Zambia (and FinMark Trust beforehand) has undertaken to design and deliver a package of interventions to catalyse the microinsurance market in Zambia. This case study focuses in particular on the establishment of a multi-stakeholder Technical Advisory Group (TAG) to provide leadership and coordination in the industry, and act as a channel for interventions.

The TAG approach is based on the assumption that engaging relevant industry stakeholders is the most effective way to ensure relevance and ownership of a change agenda in a nascent market’s growth. Zambia’s approach is considered a demonstration case which forms the basis for replication in several other countries.

FSD Zambia’s experience in the microinsurance market demonstrates the importance of building industry leadership and coordination in an industry to drive market development. The strong technical knowledge and experience of FSD Zambia’s microinsurance team has provided a platform for conducting analysis and generating insights and lessons.

It has also drawn on its exposure to wider trends and resources, for example the ILO’s Impact Insurance Facility and other microinsurance initiatives across Africa, to stimulate cross-learning and innovation among Zambian market players. Using different communication channels and information products have also helped foster trust and the emergence of a cohesive voice for the microinsurance industry.

FSD Africa and ILO’s impact insurance facility partner to launch a micro-insurance innovation facility to reach 1 million new clients in sub-Saharan Africa

Posted on by TIMOTHYRADIER

FSD Africa and ILO’s Impact Insurance Facility have entered into a partnership to promote innovation for micro-insurance products to serve low income households and MSMEs across Sub-Saharan Africa. Insurance penetration in Sub-Saharan Africa remains at dismally low levels with an estimated penetration rate of below 1%. This programme seeks to provide a cushion for low income households to better deal with shocks hence reducing their vulnerability.

FSD Africa will invest USD 1.83 million over 4 years in an innovation laboratory that will be managed by ILO’s Impact Insurance Facility. The innovation laboratory will support five insurance companies and/or distributors, operating in five different countries in sub-Saharan Africa, to develop innovative micro-insurance products that will reach 1 million new clients in 4 years. They will be selected through a competitive call for proposal process that will be managed by the ILO Impact Insurance Facility.

Selected insurance companies and distributors will also ive technical support for change management in order to facilitate the successful implementation of innovative insurance products. This will involve: providing support for changes in organisational structure, capacity building for staff in order to fill the gaps identified from a needs assessment process and the development of business analysis tools that will help to increase client value.

FSD Africa is delighted to partner with ILO’s Impact Insurance Facility to promote innovation for micro-insurance products. The long term goal is to enable the sector to achieve scale with a balance between broad inclusion, sufficient benefits, low premium rates and sustainability.

Paul Musoke, Director, Financial Institutions, FSD Africa

Learnings from the programme will be documented in a training module and toolkit that will be accessible to insurance companies and distributors. The insurance industry will also have access to case studies that will capture learnings from the programme. These documented resources will provide incentive and guidance to other insurance companies in developing micro-insurance products and related delivery channels.

We are excited to work with FSDA to enhance the social and economic development impact of insurance providers in Africa.

Michal Matul, Chief Project Manager of ILO’s Impact Insurance