For low-income families, access to insurance can mean the difference between a minor financial setback and being plunged into poverty. At the ILO, we’re learning more about the most effective ways to provide these forms of insurance all the time. Below are three lessons we learnt in 2015.
Insurers can help governments achieve public policy goals
The municipality of Comas, on the outskirts of Lima, is home to a growing community of mostly informal business owners. Collecting taxes in that setting proved a challenge to local authorities, who wanted to provide residents with an added incentive.
So they teamed up with Peruvian insurance company Protecta to offer families free life insurance if they’d pay their taxes in full and on time. Late payments on taxes fell by 20 per cent as families who were already paying their dues made efforts to do so more regularly. But families who weren’t paying any taxes at all, by and large, continued not doing so.
The lesson? Insurance does indeed have potential as a tool for reaching policy goals, but it’s important to better understand how it operates as an incentive.
Position health insurance products to complement, not compete
Philippines insurance provider Pioneer wanted to a launch a product that would compensate workers in case of illness. They weren’t trying to compete with the national health scheme, PhilHealth, so much as to cover the additional losses that people can face when they have to take time away from work.
So it launched a “hospital-cash” insurance product, providing customers with a defined pay-out for every day spent in hospital.
“The microinsurance sector has grown exponentially, but for every scheme that has succeeded, many more have struggled to reach scale or failed outright.”
Though the product didn’t cover the costs of treatment, many of Pioneer’s customers didn’t realize that and expected comprehensive health coverage similar to the plan offered by PhilHealth. To better distinguish its product, Pioneer rebranded it “income replacement insurance”.
At the same time, it also boosted its sales efforts by increasing the number of sales points and improving staff training, as well as allowing clients of partner microfinance institutions to take out a loan to pay the premium.
As a result of these combined changes, total enrolments increased from 5,502 people in the first year before the new branding and sales strategy were introduced, to 140,627 in the second year.
Timing is central to success
The microinsurance sector has grown exponentially, but for every scheme that has succeeded, many more have struggled to reach scale or failed outright.
A recent study suggests that the difference between failure and success often comes down to timing. It is vital that products are well-timed in relation to the level of development of the insurance market in a country. If overly complex products are introduced too early, when clients have little experience or familiarity with insurance, they are usually difficult to sell and may even damage clients’ trust in insurance.
Internal time frames are just as important. Schemes may experience several setbacks before profitable models are found. Insurers may be tempted to withdraw too hastily when at first they don’t succeed.
Seven out of the twelve schemes covered in the study stuck with microinsurance, learnt from their experiences, and are still active in the sector, while the remaining five failed altogether.
One of the schemes, AIC, for example, believes that its struggles with multiple disasters in Haiti in 2012 strengthened its culture and commitment to the market. It was able to weather the storm and come out stronger because of its leadership’s commitment and long-term vision.
Find out more about what we learnt and progress made in the ILO’s Impact Insurance Facility Annual Report.