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Parallel session 12 Consumer-oriented education in Ethiopia: What people want
Hosted by the World Bank
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By Maria Victoria Sáenz The session hosted by the World Bank illustrated how a market study and market education led to a better implementation of the National Financial Inclusion Strategy (NFIS) of Ethiopia. The NFIS goal for microinsurance is ambitious: by 2020, 5 % of adults will report having an insurance policy. The government realises that despite advances in their supply, financial services still need more diversification and products designed to meet the needs of low-income customers.
As part of a project led by the World Bank (see Box 8), the government requested a thorough analysis of the market to update findings of the “Landscape of Microinsurance in Africa 2015,”13, which depicted a very small market with less than 2 % of the population covered and only by credit life.
73 — Michael J. McCord, Managing Director, MicroInsurance Centre at Milliman, United States
74 — Craig Thorburn, Lead Financial Sector Specialist, World Bank, United States
73 Box 8 “Promoting Inclusive Insurance in Ethiopia”, which addresses the strengthening of regulatory and supervisory frameworks for microinsurance, supports the development of new microinsurance products, enhances the proportionality of the regulatory framework for market conduct and consumer protection, designs financial literacy programmes, and even proposes improvements for index-based insurance.
The National Bank of Ethiopia was clear: it wanted regulation compliant with the IAIS Application Papers and enabling microinsurance expansion. The analysis of the World Bank project would then provide the foundation for adjusting baseline structures to expand microinsurance products and services throughout the country, ultimately achieving the NFIS targets. The project’s demand-side study was led by the MicroInsurance Centre at Milliman. The team used a methodology combining pre-survey focus group discussions (FGDs) to test survey concepts – a survey of almost 3,000 people. It also tested postsurvey FGDs to clarify information from the survey, and dug deeper into market demand in areas that showed promise from the survey. The locations and study participants representing the target market were selected randomly, in rural and urban areas. Box 9 shows some results of the focus groups and surveys. Box 9 Characteristics and financial behaviour of respondents 75 % of men, 50 % of women literate 92 % of rural households depend on agriculture 20 % of households have no mobile
2/3 of households are 2 times above the food poverty line 7 % save regularly 50% have borrowed in the last 5 years 15 % have never had insurance
80 % belong to an Edir14 49 % have never heard of insurance before, 41 % are not sure how it works and 25% do not know where to find it: 6 % considered insurance too expensive, 6 % considered it complicated and inconvenient and 1 % thought they do not need insurance. Using cash and savings is the most common coping strategy (60 % urban, 58 % rural), then donations or loans from family and friends (24 % urban, 20 % rural), then getting an additional job (4 % urban, 7 % rural), and finally borrowing from a SACCO, bank or moneylender (2 % urban, 3 % rural). Based on the cost, losses, the likelihood of occurrence and the level of worry that different events cause, the three more important risks for urban people are illness in the family, transport or accident and damage to or loss of property; for rural people, the ranking is crop loss or damage, illness in the family and illness or death of livestock.
Source: McCord, Michael. Presentation “What people want: Investigating Inclusive Insurance Demand in Ethiopia.” 14th IMC 2018.
13 The study published by the Munich Re Foundation and the Microinsurance Network is available at http://worldmapofmicroinsurance.org 14 Edirs are traditional community groups whose members assist each other socially and financially, specially in the case of a family member’s death, when typically up to 25 % of the costs are covered by the Edir.
Parallel session 12 Consumer-oriented education in Ethiopia: What people want
With all the information retrieved, the team designed simple prototypes that were tested with focus groups (see Figure 34). The focus groups gave feedback on the value of the proposed benefits, how and where people would most likely pay the premiums, and their preferred way of receiving claims settlements. They also provided an understanding of their willingness to pay for the product. The feedback on insurance was positive, with up to 50 % of respondents willing to pay an actuarially sound premium. The study served to pinpoint the framework for a technical group (insurers, SACCOs, MFIs and regulator) to work on microinsurance regulations. This working group received intensive training and was able to design three prototypes based on the market study results: credit life, hospital cash and term life that are innovative beyond the traditional products. MFIs, SACCOs and insurance agents would be the distribution channels. To allow products to really have an impact, the regulatory authorities approved an innovative approach: 1. Guidelines for fast-track approval of pilot products, exempting them from conventional regulations, and feeding information needed for the regulatory structure. 2. Design of a prototype policy document.
3. A technological platform to receive applications and make changes in real time.
4. A partnership among stakeholders to limit the approval process to 2 weeks.
Figure 34 Results from basic prototype testing Lessons learnt
• Common beliefs (like the importance of death as a risk and availability of mobile devices) must be tested before designing products based on them.
• Financial behaviour of respondents indicates that there is space for insurance, albeit with a strong emphasis on financial literacy given the lack of information about insurance.
• With a better understanding of the market, products as well as regulation can be improved. • The regulatory process is as important as the administrative process. • Technology has an important role to play in the implementation of an
NFIS.
• A market study should be the entry point of national financial inclusion strategies, regulations and product design. • Monitoring in real time the results of a product exempted from regulations is an innovative way to develop appropriate regulations.
Benefit to developing market-segmented products Potential for MI purchase by up to 10 million HHs, or 50 million people
Death risk not a priority BUT Edirs mainly social need more exploration 5 product prototype FGD results
Risk management approaches focused on supplemental health in urban areas
Segmentation in approaches by gender is key – gender specific education & marketing
More comprehensive approach to agricultural risk management in rural areas
