Building resilience in vulnerable communities

The ICMIF 5-5-5 Mutual Microinsurance Strategy

DEVELOPMENT

International Cooperative and Mutual Insurance Federation

icmif

THE ICMIF 5-5-5 MUTUAL MICROINSURANCE STRATEGY

Insurance for low-income populations, or microinsurance, is now firmly accepted as an integral tool for poverty alleviation and building resilience in communities against natural and man-made disasters. With the support of national governments, donors and insurers, microinsurance has grown rapidly from covering 78 million risks in 2007 to an estimated 500 million risks in 20121. With around half a billion people covered under microinsurance, there is a growing consensus that ensuring client value and effective consumer protection measures will become key determinants for the sustainable growth of the industry.

While a large number of conventional insurers are trying to understand the components of client value and how to improve their products and processes, the mutual insurance model has, for centuries, demonstrated the success of a client-centered approach in serving the previously underserved populations in both established and emerging markets. Mutual and cooperative insurers (hereafter referred to as “mutual”) uniquely have the ability to align the incentives of insurer and insured, as policyholders are the owners of their insurance activity.

Overall the mutual sector represented 27% of the global insurance market in 2014 with USD 1.3 trillion in premiums and served 955 million policyholders2. Mutual insurance works for all income groups in a society. In addition, it is inherent in the DNA of the mutual model to provide access to necessary services to those that have been excluded by the formal insurance sector. Mutuals have the long-term, value-based and needs-driven approach to make them an appropriate platform for sustainable poverty alleviation and local or community-based empowerment.

Key features of mutual insurance and shareholder company insurance in relation to microinsurance

Mutual insurance Shareholder company model

Needs first approach to risk amelioration Profit first approach to risk amelioration

Insured person is a member of a group undertaking Insured person is a consumer

Relationship between insurer and members based on engagement and participation

Relationship with insurer based on customer service interaction

Microinsurance solutions primarily developed from within communities/societies

Microinsurance increasingly delivered by external players

Microinsurance is part of a wider process of empowerment and education

Microinsurance is part of the development of an effective market economy

In emerging markets there are some very good examples of mutual insurers offering valuable services to low-income households (such as CARD MBA in the Philippines and CIC Insurance Group in Kenya), however, the majority of these have been hindered from achieving their potential scale compared to their shareholder or stock company counterparts. This is partly due to a focus on a shareholder led approach by the donor and microinsurance community, a changing regulatory environment which does not take into consideration the mutual model, limited capacity and will to support the long-term development of grassroots organizations and a lack of awareness of what actually works for poor people.

1 Protecting the poor - A microinsurance compendium- Volume II. Microinsurance Innovation Facility & Munich Re Foundation 2012.2 Source: ICMIF Global Mutual Market Share 2014, published in March 2016

BACKGROUND

THE ICMIF 5-5-5 MUTUAL MICROINSURANCE STRATEGY

The International Cooperative and Mutual Insurance Federation (ICMIF) aims to address these challenges and help mutual microinsurance reach its full potential scale in emerging markets thereby positively impacting the lives of millions of low income households. ICMIF is a long established and unique global organization which represents the interests of over 230 “people-centered insurers” in 70+ countries and is ideally suited to develop mutual microinsurance in emerging markets. ICMIF members in emerging markets have a huge potential for increasing their scale due to their affinity with the wider mutual and cooperative insurance sector.

In January 2015, ICMIF’s Development Committee adopted the 5-5-5 Mutual Microinsurance Strategy to develop mutual insurance in emerging markets. Over a five year period3, ICMIF plans to develop mutual microinsurance programmes in five emerging markets, reaching out to 5 million new households ie an additional 25 million poor people.

ICMIF’s suitability to undertake this task Since its inception in 1963, the ICMIF Development Function has been engaged in providing technical assistance to mutual insurers in emerging markets. The Development Committee oversees the Development Function of ICMIF and reports directly to the ICMIF Board. Members of the Committee include senior leaders from established and emerging companies; all of whom are playing a direct or supporting role for the development of mutual microinsurance.

With the support of its established members, ICMIF has been involved in setting up 25 new mutual insurers and supporting the growth of many others through the provision of capital and resources. This is testament to the spirit of cooperation, which is at the heart of larger mutuals, and the willingness to support the development of fellow mutuals operating in difficult markets.

Cooperative and mutual insurers in emerging markets • Premiums grew by 115% between 2007-2014 • 77 million policyholders were served in 2014 • Employed 85,000 people in 2014

Mutual microinsuranceMutual microinsurance is a mechanism to protect people against risk in exchange for payments tailored to their needs, and in a manner where they participate in the design, development, management and governance of such product, services or institutions. Mutual microinsurance is deemed to be ‘inclusive’ as it encompasses all types of low income or marginalized groups which may not fall under the conventional microinsurance definition.

ICMIF’s 5-5-5 plan for emerging markets

ICMIF’s Development Committee

Chair of the ICMIF Development Committee: Dr Aris Alip, Founder & Managing Director of CARD MRI, the Philippines

Vice Chair: Mr Kumar Shailabh, Executive Director, Uplift Mutuals, India

Vice Chair: Ms Annette Houtekamer, Board Member of DHAN Foundation, India

Vice Chair: Mr Bert Opdebeeck, Microinsurance Programme Coordinator, BRS, Belgium

3 The five year period will commence at the beginning of the first country intervention

ICMIF’S PLAN TO EXTEND MUTUAL MICROINSURANCE

Over the next five years

Extending mutual microinsurance in five emerging markets

Reaching out to 5 million low income households

Impacting on an additional 25 million people

THE ICMIF 5-5-5 MUTUAL MICROINSURANCE STRATEGY

The five emerging markets selected for development of mutual microinsurance for the next five years are: the Philippines, Kenya, India, Sri Lanka and Colombia. The countries have been selected taking into account (amongst others) the following criteria:

• A country that is a frontrunner in microinsurance ie large microinsurance markets, underserved populations and high incidence of poverty

• Where the ICMIF member(s) has a strong “on-the-ground” presence and is a champion in providing mutual microinsurance

• Where the local ICMIF member(s) has capacity and is willing to partner in developing and implementing a country program

• Where there is a strong local research capacity and institutions for collaboration on country study

SELECTION OF EMERGING MARKETS

KenyaPopulation: 45.5 millionGDP per capita: USD 2,705.3HDI index: 0.548HDI rank: 145Population below poverty line: 43.4%Insurance density: USD 39Insurance penetration: 2.9%Microinsurance coverage ratio (2014): 5.98%Local ICMIF members: CIC Insurance Group, Takaful Insurance of Africa

ColombiaPopulation: 48.9 millionGDP per capita: USD 12,025.4HDI index: 0.72HDI rank: 97Population below poverty line: 5.6%Insurance density: USD 194Insurance penetration: 2.5%Microinsurance coverage ratio (2013): 14.63%Local ICMIF members: La Equidad, Promedico, SCARE

THE ICMIF 5-5-5 MUTUAL MICROINSURANCE STRATEGY

IndiaPopulation: 1,267.4 millionGDP per capita: USD 5,238HDI index: 0.609HDI rank: 130Population below poverty line: 23.6%Insurance density: USD 55Insurance penetration: 3.3%Microinsurance coverage ratio (2012): 9.22%Local ICMIF members: DHAN Foundation, IFFCO, IFFCO-TOKIO, VimoSEWA, SHEPHERD, Uplift Mutuals

Source:

Population: UN Human Development Report 2015

GDP per capita: UN Human Development Report 2015

HDI index: UN Human Development Report 2015

HDI rank: UN Human Development Report 2015

Population living below income poverty line (USD 1.25/day): UN Human Development Reports 2015

Insurance density (premiums/capita): Swiss Re Sigma 4/2014. World Insurance in 2014

Insurance penetration (premium as a % of GDP): Swiss Re Sigma 4/2014. World Insurance in 2014

Microinsurance coverage ratio (%): World Map of Microinsurance, Microinsurance Network

PhilippinesPopulation: 100.1 millionGDP per capita: USD 6,326.2HDI index: 0.668HDI rank: 115Population below poverty line: 19%Insurance density: USD 58Insurance penetration: 2.0%Microinsurance coverage ratio (2012): 21.35%Local ICMIF members: CARD MBA, CISP, CLIMBS, NATCCO MBA, RIMANSI

Sri LankaPopulation: 21.4 millionGDP per capita: USD 9,425.7HDI index: 0.757HDI rank: 73Population below poverty line: 4.1%Insurance density: USD 40Insurance penetration: 1.1%Microinsurance coverage ratio (2012): 0.34%Local ICMIF members: Amana Takaful Ltd, Co-operative Insurance Co Ltd, COOPLIFE Insurance, Sanasa Insurance Co Ltd

THE ICMIF 5-5-5 MUTUAL MICROINSURANCE STRATEGY

Phase 1 - Country diagnostic: A first of its kind research project on mutual and cooperative insurance in a given country/countries to formulate an evidence-based country strategy for developing mutual microinsurance in emerging markets. The studies will be carried out in partnership with local ICMIF members, insurance institutions and under the supervision of the ICMIF Academic Steering Committee on Financial Inclusion. This Committee is composed of leading researchers from across the globe to bring objectivity and expertise to the research that is being done. Prime responsibilities of the Committee include providing leadership in the research activities of ICMIF, overseeing research projects and developing links between academics and practitioners to promote mutual microinsurance. The active involvement of practitioners (mutual insurers) and academics will ensure academic rigour along with in-depth insights into the mutual microinsurance environment in the country.

Each country study will have two parts – the mutual insurance landscape and case studies. The landscape will aim to provide a comprehensive picture of mutual insurance in emerging markets by analyzing the demand for and supply of mutual microinsurance as well as the impact of regulation on the sector. The case studies will feature prominent mutual microinsurers in these countries and highlight their products, business model, impact on risk management and their key concerns. A set of common parameters

A FOCUSED IMPACT-BASED APPROACH

ICMIF has laid out a three-phase strategy to achieve the 5-5-5 Mutual Microinsurance Strategy:

Members of the Academic Steering Committee on Financial Inclusion

Professor Thankom Arun, University of Essex (UK) (Chair)

Mr Jim Jones, Katie School of Insurance (USA)

Dr Gilberto M. Llanto, The Philippine Institute for Development Studies (The Philippines)

Dr Shariq Nisar, Islamic Finance Expert (India)

Professor Joan Schmit, University of Wisconsin-Madison (USA)

Dr Linda Shaw, The Cooperative College (UK)

Dr George Thomas, Insurance Institute of India (India)

ICMIF’s three-phase strategy

• Market accessment• Showcase success stories• Identify opportunities

Phase 1 Country diagnostic

Phase 2 Country strategy

Phase 3 Country intervention programme

• Technical assistance• Advocacy• Financial support• Country response

framework• Select project partners• Prepare project proposal

THE ICMIF 5-5-5 MUTUAL MICROINSURANCE STRATEGY

ICMIF FOUNDATION IN 2021

By the end of 2016, the activities of the ICMIF Development Function will have been transferred into a separate, not-for-profit institution called the ICMIF Foundation.

The ICMIF Foundation will be changing the face of the mutual insurance industry in the five emerging markets and reaching out to 5 million previously uninsured, vulnerable and marginalized households by 2021. It will:

• Create a wealth of knowledge, tools and solutions on mutual microinsurance • Employ the skills and expertise of large and well-established ICMIF members to promote a North-

South and South-South learning corridor • Build the capacity and resilience of small and growing members in emerging economies • Unleash the potential of mutual insurance in improving the socio-economic security of the poor • Educate the supervisors and regulators on the potential of mutual and cooperative insurance • Build on the lessons of the first five country programmes while designing the country development

programme for the next set of countries

will be developed to select these case studies across countries in order to make them comparable. Based on these analyses, the country diagnostic will identify the challenges faced by the mutual insurance sector in that particular market and make recommendations for the future development of the mutual microinsurance sector.

Research partners: ICMIF will seek to partner with well-known and reputable insurance and research institutions in the relevant countries. For the first two countries, India and the Philippines, the Insurance Institute of India (III) and RIMANSI respectively have been the partners. This helped ICMIF to leverage their expertise in devising a long-term strategy for the development of mutual insurance in these markets.

Phase 2 - Country strategy: This document will deliver a detailed plan for the development of the mutual microinsurance market in a country. This phase will entail engagement and partnership-building with mutual and cooperative insurers and other relevant institutions to arrive at an agreement on the core strategy. Dialogue will be initiated with regulators, donors and other stakeholders to ensure widespread participation in the process. A country strategy document will be prepared that will form the basis for ICMIF’s work in the country.

Phase 3 - Country intervention programme: This is the last and the most important part of the strategy. This will involve putting each country strategy into operation and providing on-the-ground support to develop mutual microinsurance in these countries. ICMIF will use the strength and expertise of its larger members and the various technical resources it has at its disposal to action the country strategies. Organizations will be chosen based on the case studies as on-the-ground project partners for supporting the field implementation. A country officer along with ICMIF secretariat will coordinate and monitor the country programmes.

It is important to note that each of the country intervention programmes will be very country specific – the overall budget, intervention strategies, impact partnerships with other stakeholders (donors, regulator etc) will vary from one country to another depending on the particular country strategy.

Published March 2016

For more information please contact Sabbir Patel, Senior Vice President, Emerging Markets: sabbir@icmif.org

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