MR Microinsurance_2012_03_29.indd - International Labour ...

478 Insurers and microinsurance
premiums are actuarially determined for each sub-group of a target population,
some sub-groups may not be able to afford the product. Cross-subsidization is
therefore acceptable as long as anti-selection does not become a threat to the
scheme’s sustainability; for example, the older cooperative members could be
excluded (de facto or due to higher premiums) from a life insurance cover if pricing
is not on a community basis.
– Simplicity: A simple premium structure will be easier to administer, and easier
to explain to the target population, thus increasing understanding of the
product, which may lead to higher take-up.
– Scale: If a large number of people purchase the product because of its affordability
and simplicity, then it will be easier to spread fixed costs and make the scheme
more sustainable in the long term. If scale is achieved, uncertainty as to pricing
and other financial criteria is reduced.
In the long run, community pricing permits better development objectives
and allows the risk carrier to achieve scale and better profitability. The shortcomings
of community pricing can be mitigated with underwriting rules (e.g.
eligibility conditions). While pricing is conducted at community or group level,
factors such as age and gender should be taken into account in the detailed analysis
and monitoring of the results. Analysis at a more granular level ensures that
there is no anti-selection and that the risk premium remains fair.
Scenario analysis and reasonability checks
Once a premium has been calculated, a sensitivity analysis testing the impact of
variations in a single assumption can help identify the variable to which the
financial performance of the product is the most sensitive. Since the financial
results will vary depending on take-up, the maturity of the scheme, the behaviour
of the population and the uncertainty related to these factors, different experience
scenarios should be explored to understand the range of possible financial
outcomes for the scheme priced.
Once the pricing specialist has produced a suggested premium, it should be
checked against the ATP and WTP to ensure that it is reasonable. A major challenge
for the project team is to offer protection that matches the needs of lowincome
households at an affordable premium that covers claims, other expenses
and any reserving requirements and profit margins required for the product to be
sustainable. It is likely to take several iterations of the pricing process to reach an
acceptable balance so that it is valued by and affordable for the customers. To do
so, it may be necessary to review the product design by reducing or changing the
benefit structure to make the product more affordable, or exploring scheme
implementation and process improvements.