MR Microinsurance_2012_03_29.indd - International Labour ...

Is microinsurance a profi table business for insurance companies?
later re-launched this product as Bima ya Jamii with the health risk outsourced
to the NHIF.
Insurers employed the following measures to manage claims costs, including
pricing for risk and implementing measures and controls to manage claims
risks:
Pricing for the risk
Credit life and basic accidental death and disability products are easier to price
than health products. Th is has been the advantage for CIC, ASR and Malayan.
Both CIC and ICICI Lombard have had negative claims experience with the
health insurance products, which was exacerbated by the diffi culty in balancing
the demand for higher levels of cover with aff ordability of premiums.
To price the products, insurers generally used existing experience in similar
products from the traditional insurance market and made adjustments for the
low-income market. Old Mutual and ICICI Lombard experienced diffi culty with
this approach (see Box 18.4). Claims experience with the group funeral insurance
and the MAS health insurance product did not refl ect initial estimates. International
standards in pricing index-based insurance were used to price the
weather product, for which ICICI Lombard received support from the reinsurer.
Box 18.4 Re-pricing risk
Old Mutual’s claims ratio has been higher than the target of 60 per cent since
inception, at close to or above 100 per cent in 2006 and 2007. Th is is partly due
to the profi le of the market, where mortality experience was higher than
expected in the initial pricing based on other market segments.
Old Mutual adjusted the pricing for the group funeral cover and introduced
diff erential pricing among groups. It actively monitored claims and adjusted
premiums on an on-going basis, providing discounts for good claims experience
and increasing premiums in the case of poor claims experience. Th ese eff orts
resulted in the claims ratios declining to between 65 per cent and 75 per cent.
Th ough these eff orts resulted in a decline in premium volumes, they have
resulted in the retention of better-quality business.
Implementing measures and controls to manage claims risks
Insurers need to fi nd a balance between setting up suffi cient controls to manage
risks and maintaining effi ciency and low acquisition costs. Insurers utilize similar
techniques to manage claims risks to those used for traditional insurance business,
including the following:
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