MR Microinsurance_2012_03_29.indd - International Labour ...

Microinsurance intermediaries
allows the company to conduct business in these countries while avoiding many
of the potential pitfalls associated with legal registration.
MicroEnsure maintains a special business relationship with Hollard Insurance
(South Africa), which offers MicroEnsure a facility that operates like a cell
captive. This arrangement allows MicroEnsure to use Hollard’s insurance licence
and write specific classes of business on Hollard’s books without having to solicit
new capacity or to put up risk capital itself. Hollard benefits from increased
insurance volume, while MicroEnsure enjoys a 50-per-cent profit share on
underwriting gains.
In addition, Hollard serves in some cases as a reinsurer, which makes the franchise
model look attractive. MicroEnsure works at the local level through registered
insurers that serve as fronting companies channelling the business sourced
by MicroEnsure into Hollard’s books and maintaining full control over underwriting
and claims data. In this arrangement, MicroEnsure receives a commission
for its work and an underwriting profit share.
Though MicroEnsure operates in most cases under the legal structure of a
broker, it does much more than a traditional insurance broker would do. It
actively works to create markets from capacity building of delivery partners and
product development, to underwriting, claims administration and market education.
Hence, an outsider looking at MicroEnsure’s range of services would conclude
that it behaved rather like an insurer, except that it is not exposed to underwriting
losses.
Starting with standard credit life products for MFIs, MicroEnsure moved
into more complex products and beyond MFIs as delivery channels. The changes
arose from both a corporate social conviction (in part due to the company’s nonprofit
ownership) and a business necessity. MicroEnsure management believes
that client value is much higher in products such as health or crop insurance and
at the same time realizes that credit life microinsurance is quickly becoming a
commodity business that will eventually squeeze out brokers unless they add
value to the composition, processing or administration of such policies.
MicroEnsure has been involved in the development of index-based insurance
(see Chapter 11), but it has learned that this area poses many challenges for brokers.
Product development is costly and time-consuming, and reaching scale has
proved to be difficult – the combination of complex product designs, comparatively
high premium levels and incomplete protection has hampered take-up.
These realities have motivated MicroEnsure to move away from developing index
insurance products as an up-front investment to a model where it offers its expertise
as a consulting company for others developing index products. While this
move clearly improves MicroEnsure’s financial situation, it does not solve the
practical problems the product faces on the ground.
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