Alice Merry, ILO Research and Innovation Officer

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 ILO’s Impact Insurance Facility works with the insurance sector, governments and their partners to provide critical safety nets for vulnerable families. Learn more

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.

Craig Churchill, Team Leader of the Microinsurance Innovation Facility

Our work on financial inclusion is difficult to understand fully from Geneva, where nearly everyone has access to a huge range of financial services.

Fortunately, I have had a number of opportunities to do field research, conduct surveys, and organize focus groups in developing countries. That is when you get clear insights about the huge challenges that workers in the informal economy, day labourers, and microentrepreneurs face on a daily basis.

These discussions often evolve into conversations about risks – what are the risks that people are most concerned about, what keeps them up at night? Of course, the answers vary a great deal depending on the person and country: not having enough food to eat, no employment opportunities, concerns about their children’s future, natural disasters, theft and so on. But in general, the one concern that is mentioned most often is health: being able to afford decent health care without being impoverished in the process.

Promoting universal health coverage

Fortunately, in many developing countries, this concern is beginning to be addressed. Over the last five years, many governments have expressed an interest in promoting universal health coverage. And governments are increasingly recognizing the role microinsurance plays in achieving it.

Microinsurance provides protection for low-income people in return for small premium payments. The providers are usually private organizations, such as community-based organizations, NGOs and insurance companies. Microinsurance can cover a range of risks, including illness, death, drought and natural disasters. The ILO’s Microinsurance Innovation Facility, initially funded by the Bill & Melinda Gates Foundation, has played a key role in promoting better insurance services for low-income people in the developing world.

Positive impacts

Organizations that offer health microinsurance often share the aims of governments and have experience extending access to health care. Governments therefore see the potential of collaborating with them. The contribution of these organizations takes many forms, including laying a potential foundation for universal coverage, providing a means to experiment and test new approaches, and supplementing basic government benefits, as summarized in one of our recent papers.

Increasingly, we are seeing evidence of the positive impact that these kinds of schemes can have. Recent research across a number of countries shows that insurance for low-income households reduces out-of-pocket expenditure and increases the use of health services. For example, our research in Kenya found that insured people had fewer medical expenses, allowing households to consume more. In terms of health outcomes, our findings from Guinea and Bangladesh show insurance-enabled access to health services reduced maternal and child mortality.

These positive results are enhanced when governments collaborate with insurers, community groups and organizations that distribute insurance, like microfinance institutions, cooperatives and even cell phone companies. But this collaboration between the public and private sectors is not a given. This is something that the Facility will focus on over the next five years: working even more closely with governments, insurers and other stakeholders to develop stronger microinsurance markets and promote public-private partnerships.

The ILO has been developing this approach since 2009 in Ethiopia and since 2010 in Zambia. As a result, nearly 3 million low-income people have access to some sort of insurance in those countries. The next step is to improve the quality of products and to make sure that they cover the risks that concern and affect low-income people the most, like a lack of health care. You can find out more about microinsurance market development in the recording of our latest webinar.

By engaging at all levels, with regulators and policymakers, with insurers and distribution channels, with low-income households and communities, we believe that we can make a significant difference in helping the working poor to manage risks more effectively, and to break the vicious cycle of poverty.