MR Microinsurance_2012_03_29.indd - International Labour ...

Improving credit life microinsurance
– Some institutions claim their customers are satisfied with the basic offerings and
are not aware that there is demand for anything else.
9.6 Conclusions and recommendations
Borrowers enrolled in group liability models, those with relatively high-value
loans (which lenders are not willing to write off), and those in cultures that consider
leaving debt after death as taboo, may benefit from credit life insurance. In
most cases, however, credit life remains a product seen as benefiting the lending
institutions. The financial value to clients is often poor with credit life, especially
for cooperative-based programmes. For cooperatives, the reasons for poor value
include limited competition, a policy of building up surplus and contingency
reserves without infusing external funds, lack of focus on providing financial
value due to complacency, and cautious overpricing due to a lack of actuarial
expertise.
The involvement of many parties – lender, broker, insurer and reinsurer – can
add inefficiencies to credit life products. Cases where lenders manage the credit
life on their own have potential to keep costs much lower, but are frequently
focused on fee generation rather than value creation.
There is a demand from clients for innovation beyond basic credit life. The
value of credit life is significantly improved when there is enhanced cover available
and the loss of family members is added. Product expansion typically occurs
by adding cover of additional risk events (as with total permanent disability), an
increased cover amount (such as cover of three times the loan amount), other
insured persons (preferably the spouse), or insurance for other assets (such as the
home). Voluntary credit life insurance may also lead to improved products, as
they require a positive purchase decision from clients, but such products have
proved difficult to sell.
There are often constraints on expanding credit life products, such as technical
capacity, financial capacity, management requirements, an unclear business
case and price sensitivity in the market. Front-line organizations may cede or
retain the insurance risk depending on their situation and their plans for microinsurance
product evolution. Some strive to reduce cost and improve value, some
lack access to alternative options, and others seek to optimize their profit.
The structure of the product – credit life as a stand-alone product in contrast
to an enhanced product with family cover and/or cover for other risks – has a
considerable impact on operational issues. These issues include continuity of
cover, premium calculation and collection methods. They need to be considered
before the introduction of the product to ensure clarity and to minimize
conflicts. Product adjustments to include families, or at least spouses, need to be
carried out carefully and must factor in claims controls and pricing issues.
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