MR Microinsurance_2012_03_29.indd - International Labour ...

Improving client value
rare, so members are requested to contribute during the funeral and sometimes
groups organize special events to collect funds to help members respond to major
health shocks shocks (Cohen et al., 2003; Smith et al., 2010; Simba, 2002).
Since the cost of a funeral can vary from KES 150 000 to KES 200 000
(US$1 666 to US$2 222), risk cover from one group is insuffi cient. Many people
belong to between two and fi ve welfare groups at the same time or combine mem
bership with other strategies such as borrowing or selling assets to generate the
required amount. So even if regular contributions to one group may seem aff ordable
(and are close to the premiums collected for similar microinsurance products), the
cost-to-benefi t ratio is low. Moreover, each membership incurs transaction costs
in the form of time, fees and in-kind contributions, so relying on several informal
group-based mechanisms can be a costly strategy for coping with shocks. Lastly,
these groups do not have any reinsurance arrangement that could provide cover
in the event of excessive claims, so the groups are fi nancially vulnerable as well.
Th e welfare groups in Kenya are accessible, but seem to provide poor service to
their members. Johnson (2004) reports that 40 per cent of households in one rural
area belonged to at least one group. In most cases rules are simple, and groups are
within the close community and have convenient ways to collect contributions in
frequent but small instalments. Claims settlement procedures are also easy and
quite fl exible, but seem to work only for ex-ante schemes that provide good service
in urban areas for life risks. In the event of a funeral, urban groups usually pay the
benefi t to the family instantly, but prompt payment is rarely the case in rural areas
and in general for health risks. Th ere is some evidence to suggest that ex-post con-
tributions are provided with long delays, if at all. Simba (2002) says that collecting
contributions from members can take many weeks after a funeral.
Th e other useful benchmark for analysing client value for microinsurance is
social security schemes. Despite the emergence in many countries of social security
schemes that go beyond the formal sector, their outreach is low and they rarely
off er comprehensive protection, most often covering health shocks or catastrophic
events, or aiming at reducing the vulnerability of children and elderly people
(ILO, 2008).
Th e National Hospital Insurance Fund (NHIF) in Kenya is a good example of
a government eff ort to protect a poorer stratum of the population. Originally
available for formal-sector employees and funded by their contributions, in 2007
NHIF was opened to include informal-sector workers for an annual premium of
KES 1 920 (US$21) for the whole family, which is approximately 0.8 to 1.2 per
cent of a low-income household income, well within the willingness-to-pay range
identifi ed in Chapter 7. Th e cover can be bought by anybody at NHIF offi ces, but
given the limited public awareness, few people have enrolled. It off ers close to full
hospitalization cover at government hospitals and limited reimbursements for
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