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58 Chapter 4 - Microinsurance: Anticipating Client RisksTable 4.4 Characteriscs of the Four Insurance Delivery ModelsCriteria Partner-agent Cooperave Mutual-basedassociaonOwnership Insurance company Co-operave(policyholders andowners can bedifferent)Objecve Profit-making Meeng of memberneeds (profitabilityis not a move)Nature ofmanagementDistribuonmechanismLicensingExamplesProfessionalmanagers whoreport to the boardMFIs, telecomcompany, ulitycompany, retailstores, post offices,religious instuonsLicensed under theInsurance ActICICI Bank and VimoSEWA(India)Manager withinsurance skills(member or externalresource)Member officesat the district andmunicipal levels andthrough MFIs in caseof nonmembersNot licensed underthe Insurance ActLa Equidad(Colombia)Members ofthe associaon(policyholders andowners are same)Balance betweenprofit move andmember needsProfessionalmanagement by aninsurance expert(not a member)Distribuon at theme of signing up asa memberLicensed to operateinsuranceCARD MBA(Philippines)Community-basedLocal communies (singleor mulple communiesor a network ofcommunies)Service of social needs(profitability is never amove)Management by localcommunies who lackinsurance experseNetwork of members whojoin to receive benefitsNot licensedUMSGF (Guinea)Source: Goldberg and Ramanathan 2007.Note: CARD MBA = Center for Agriculture and Rural Development Mutual Benefit Associaon; MFI = microfinance instuon;SEWA = Self-Employed Women Associaon; UMSGF = Forestry Guinean Mutual Health Organizaon Union.Given the distribution networks required to reach large numbers of clients, the most efficient and effective way toachieve large-scale microinsurance coverage is the partner-agent model. This model pairs commercial insurancecompanies with MFIs, public utility companies, or telecom companies. The insurance company provides thecoverage, and the partners provide local knowledge, local networks, and services that can lower costs.Microinsurance providers can reach large-scale coverage when a reinsurance partner and a clear and supportivelegal and regulatory framework are present. Providers are limited in their capacity to underwrite individuallyeach contract without support from reinsurance companies. Reinsurance companies play a huge role in thedevelopment of complex microinsurance products and in dissemination of the best practices in the sector.Simple microinsurance products that cover death, disability, and illness are easy to underwrite because theclients have different <strong>risk</strong> profiles and their claims do not occur at the same time. More complex products,like index-based weather and livestock insurance policies, represent exposure to events that are difficult topredict and that affect all policyholders at the same time—a drought or excess rain, for example.Special legal and regulatory issues exist for weather-based insurance products. Regulators should ask whetherthe product is insurance or a derivative. They will also have operational questions such as the definition of aninsurable interest (ownership), the legality of a climate-based index, and the acceptable proof of loss. Regulatorsmay also be concerned with the effect of those products on the soundness of the insurance industry and on
Managing Risk and Creating Value with Microfinance59the financial sector in general. Such concerns lead to norms on reserve levels and capital adequacy. Finally,regulators should be concerned with consumer protection and transparency, which can be especiallychallenging when dealing with dispersed rural populations (Arce 2007).Important reinsurance issues exist with weather-based insurance. Such products can cover the needs and<strong>risk</strong>s of several countries in a region. The World Bank, the International Finance Corporation, the EuropeanDevelopment Bank, and Partner Re (a leading international reinsurance company) have contributed€100 million in initial capital to a regional weather-based approach. Services include reinsurance, technicalassistance, and data cleaning. This effort became effective in September 2007 and will serve as a model forfuture programs (Arce 2007).Clients and beneficiaries should be informed of the coverage, means for registering claims and presentingproof, deductibles, and limitations. They also need to know about changes in policy coverage and requirements.The institutions that have direct and regular contact with the policyholders—MFIs, banks, community-basedorganizations, the government, churches, or post offices—are the best prepared to guarantee clients andbeneficiaries access to this information. The government can also play a role through consumer protectionlaws and complaint processes that protect clients when purchasing insurance and ensure that their rights areprotected in practice.How Does Latin America Fare in Microinsurance Coverage?Microinsurance varies widely throughout Latin America and the Caribbean, as a landscape study by theMicroInsurance Centre showed. Map 4.1 shows microinsurance coverage rates in Latin America. The surveyon which this map is based focused on the world’s 100 poorest countries. The Latin American leaders inthis group are Colombia, Peru, and Ecuador, all with relatively good insurance networks. Brazil, Mexico, andother wealthier countries in the region were not included in the survey. Although Brazil and Mexico have lowinsurance coverage rates for the poor, given their relative size and wealth, the case studies in boxes 4.2 and 4.3prove that microinsurance is progressing in those countries as well (Roth, McCord, and Liber 2007).
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