Market-based micro-insurance solutions for disaster preparedness - Anuj Jain

"We need to design and offer micro-insurance products and services through people's institutions such as SHG federations; subsidised by the State and backed with financial education."  - Anuj Jain, Senior Fellow, Coady International Institute, Canada

We did something unusual. When we got an offer of Euro half a million grant from one of the largest insurance companies (donated by its employees and matched by the corporation); we politely asked if they would rather be interested in partnering with us to design and offer insurance to the Tsunami affected against future disasters. And to our pleasant surprise, they agreed. The logic of offering insurance against disaster is to try and find some market based solutions to disaster preparedness. It was an experiment. We jointly worked to design and offer life, assets, income and health insurance. Some of the key lessons were to know that the affected people preferred bundled products (combined insurance) that covered the family instead of individuals. The cost of sale and administration was brought down by having first layer of processing done by the SHGs and their federations, and also the local partner NGOs playing the capacity building and product education role. Within months, 200,000 policies were sold!  And the first test came rather quickly. A cyclone hit the same areas in 2008, within six months of insurance services being bought. And the company ended up shelling out over a million dollars in claims; bearing the losses. The product design and premiums were redesigned as a result, and the demand remained.

But the basic lesson that was understood was that it is much harder to pursue active market viability without participation and subsidization by the State. Well, why should State subsidize the premiums? the logic is a simple one. When citizens get affected by the disasters, the State has to take care of the response in any case. Hence, why not invest part of the resources in insurance? This logic is slowly been accepted by some governments, by indirectly subsidizing insurance premiums while offering the products to the poor and the vulnerable. But there is a long way to go for universalization of coverage. And private sector companies are unlikely to come forth and bear the losses in the longer run, even if small losses in the interim remain rather minuscule compered to the profits they make in the market, otherwise. Cross subsidization is possible, but perhaps undesirable; or so we learnt to an extent.

We also realized that life insurance and assets insurance are easier to design; health insurance are much harder; mostly because of weak health delivery infrastructure and malpractices that somehow appear when health service providers realize that their clients have health insurance.

We need macro level dialogue and understanding between the NGO, the private sector and the State to design and offer micro-insurance products and services through people's institutions such as SHG federations; reducing the cost of administration and perhaps, partly subsidized by the State, to make the products business viable for the private companies. In addition, there is the need to have financial education for people to realize the importance of insurance and to assess products that suit their situation and requirements.

And, last, but not the least, it is very important for the front line staff of the insurance companies to believe in micro-insurance market segment and see the poor as their worthy clients; and not see this as 'charity'. Fortune at the bottom of the pyramid need not be their primary motivation, social good needs to be the guiding principle that can help them build social capital with the society at large.