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IPSS
Microinsurance Innovations Program for Social Security
icroinsuranceNewsLetter
An Introduction from the Program Manager HE Microinsurance Innothe expected impact of this vations Program for Sotechnical cooperation procial Security (MIPSS) team gram financed by the Gerwhich contributes to the man government. The ultidevelopment and promotion mate aim is for the poor to of microinsurance (MI) in the have greater access to risk Philippines through GTZ on protection. behalf of the German MinIt is broadly known that istry for Economic Coop- Dr. Antonis Malagardis insurance belongs to the eration and Development least developed subsystem (BMZ) is glad to launch this first issue of financial services in developing of the MIPSS MicroinsuranceNewscountries. The development of MI is Letter. Global experience in the field a big challenge due to currently lessof MI was taken into account to dethan-favorable conditions in the en>> Turn to page 2 fine the approach, the rationale and
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Microinsurance ready for takeoff
No. 1
ď Ž
January 2010
What’s Inside Manila welcomes int’l microinsurance conference Page 3
Challenges remain in index-based crop insurance Page 4
Criteria developed for regions to insure vs. natural calamities Page 6
By Dante Portula icroinsurance, or insurance for the poor, will soon become an integral part of the Philippine financial system. It is already in place in many developing countries where microinsurance has enabled low-income persons to secure their lives socially MIPSS draws energetic cooperation among members and economically. In the Philippines, all have laid the groundwork for microinstakeholders in the government and fisurance to provide protection from daynancial sectors have joined hands since to-day risks that threaten to impoverish last year in a comprehensive and highly many Filipinos. collaborative effort. As a result, they >> Turn to page 4
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Addressing capital risk in microinsurance Page 8
Social health insurance, microinsurance can complement each other Page 10
Microinsurance awareness and impact surveys conducted Page 11
www.microinsurance.ph
Formal exchange of notes for MIPSS last August 2009 between Department of Finance Undersecretary Gil Beltran and GTZ Country Director Jochem Lange, with Insurance Commissioner Eduardo Malinis applauding. Right photo: Technical Working Group chaired by Deputy Director Joselito Almario of the National Credit Council-DoF gets busy hammering out microinsurance frameworks and strategies.
An Introduction from the Program Manager... << Continued from page 1
abling policy and regulatory environments, the unclear roles of insurance providers and intermediaries, and the low financial literacy of the target group. In order to meet the objective of ‘inclusive’ finance and social protection, it is necessary to develop sustainable MI services which will be simple, accessible, affordable and, last but not least, supportive of demand-driven insurance products. From the global point of view, a major issue is how to increase the awareness of senior staff of public entities on the specifics of MI. Likewise the cooperation and exchange of information among various regulatory and supervision entities needs to be strengthened and the strategies in the financial sector sufficiently harmonized with the social and health policy sectors. Very important as well to the aim of achieving synergy effects is a broad consensus on the complementarity between MI and social security schemes, particularly social health insurance. When it comes to the insurance providers, the aim should be to increase the number of regulated entities, especially of those in the private sector that can provide insurance in a target group-oriented and sustainable way. It will be the main role of insurance intermediaries, on the other hand, to provide services at the least cost and most efficient way by being actively engaged in information dis-
GTZ, the German Government’s international development enterprise, has cooperated with Philippine partners for close to four decades. We strengthen the capacity of people and institutions to improve the lives of Filipinos in this generation and generations to come. Together we work to balance economic, social and ecological interests through multi-stakeholder dialogue, participation and collaboration.
semination and awareness activities. As to financial literacy, this is a priority area for educational activities at the target group level for greater outreach. Meeting the above conditions is a big challenge for all countries. It is fortunate that the Philippines can already count as early milestones a favorable regulatory framework for setting up MI operations, an ‘inclusive’ strategy for MI, a few years’ experience of providing MI through mutual benefit associations and a number of cooperative insurers, as well as commercial insurance companies that have started asking not whether they would offer MI products but how to do it. Despite these positive signals and its pioneering role in formalizing and promoting MI operations, the Philippines currently offers MI products to only 3.1% of the active population. Therefore development measures must be prioritized to help realize the enormous potential of MI. In its efforts to support all relevant stakeholders in the Philippines and to determine and streamline priority measures in the MI field, GTZ/BMZ is guided by certain principles. One of them is that microinsurance is part of the microfinance approach and integrated in the financial sector as a whole. Furthermore, a multi-level approach combines actors at macro, meso and micro level. It must also ensure consumer protection based on inclusive financial literacy that is supported by the private and public sectors. GTZ MIPSS welcomes the initiative of the Philippine government to launch the strategy and regulatory framework for microinsurance and wants to underline its full support to all related measures to follow, especially through the technical cooperation program of MI. It is the aim of the MIPSS Microinsurance NewsLetter that will be published quarterly to provide information relevant to MI development in the Philippines and present experiences through learning and innovations based on international networking. Dr. Antonis Malagardis
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www.microinsurance.ph
Events 9-11 November 2010
Manila Welcomes 6th Int’l Microinsurance Conference IN November 2010, the 6th International Microinsurance Conference will take place in Manila, Philippines. This event is hosted by the Microinsurance Network and the Munich Re Foundation. Over 400 experts from around the world will exchange experiences and discuss the challenges of microinsurance. They include representatives from international organizations, NGOs, development-aid agencies, insurance and reinsurance companies, academics, policymakers and regulators. The conference will have plenary panel discussions on key topics addressing an interdisciplinary audience. Parallel working group sessions will deal in depth with different subtopics. Interactive sessions of approximately 90 minutes are the key part of the conference, encour-
Last year’s MI conference was held in Senegal, Africa
aging discussion of work in progress and facilitating dialogue in small groups on emerging issues. In order to offer participants subjects with current and interesting content, the organizers of the conference will announce a call for proposals in March 2010. For further information: http://www.munichre-foundation.org/StiftungsWebsite. Another link to the conference is www.microinsuranceconference.org/2010.
Access to Insurance Initiative
Development bodies join up to promote microinsurance RIO DE JANEIRO – Joined together with the International Association of Insurance Supervisors (IAIS), the Consultative Group for Assisting the Poor (CGAP), World Bank, International Labor Organization (ILO) FinMark, and the German Federal Ministry of Economic Cooperation and Development (BMZ) launched the Access to Insurance Initiative last October 2009. The Access to Insurance Initiative is a new collaborative approach between international development agencies and insurance supervisors through the IAIS. This global program
is designed to strengthen the capacity and understanding of insurance supervisors, and to facilitate their role in expanding access to insurance markets. The expected outcome is to contribute towards an improved policy, regulatory and supervisory environment consistent with international insurance standards, encourage investment in the insurance sector, and develop sustainable microinsurance operations in emerging markets. For further information: http://www.access-to-insurance. org.
Launch of Component 3 ON February 25, 2010 GTZ MIPSS will officially launch its Component 3 focusing on social protection for health-related risks. The objective is to lower out-of-pocket payments in case of illness. This component will build on the experience of GTZ’s Health Project with the Philippine Health Insurance Corporation (PhilHealth) consistent with the National Strategy for Microinsurance. Participants of the 2nd Technical Working Group (TWG) meeting formulated the National Strategy for Microinsurance supported by MIPSS. The MI Strategy together with the Regulatory Framework for MI will be formally launched to the public in January 2010. From left (seated) are: Dante Portula, GTZ MIPSS; Carmen Rodriguez, CHAMBAI; Lourdes Irene Minoza, PhilHealth; Antonis Malagardis, GTZ MIPSS; Gertrudes San Diego, CDA; Ma. Piedad Geron, ADB MI; Justine Padiemos, NAPC. From right (standing)– Junjay Perez, RIMANSI; Enofre Manuel, PIRA; Del Bellen, CLIMBS; Myra Gallano, PLIA; Reynaldo Vergara, IC; and Marvin Lominoque, PLIA. Other TWG organization members not in the photo are DOF, DOH, SEC, CISP and AHMOPI.
MIPSS online THE GTZ MIPSS website www. microinsurance.ph is now accessible. The website will inform about the work of MIPSS and about microinsurance in the Philippines in general.
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Microinsurance ready for takeoff << Continued from page 1
Simplicity has been the key to creating demand and adding value to microinsurance products. This is reflected in such product attributes as: • the right balance of premium and coverage; • easy application processes; • easy claims confirmation; • few exclusions; • minimal steps for settlement and approval; and • rapid payment. The development of feasible microinsurance products is also driven by careful market research. It starts with defining the target group and
Overview of Philippine microinsurance market
then determining the group’s insurable risks. A further step is determining the key product features appropriate to the target group’s needs and payment capacity. It is also necessary to consider whether a product is designed for groups or individuals, whether it should be mandatory or voluntary, and what approach the insurer should adopt for covering higher-risk persons. The goal is to strike a balance between broad inclusion, sufficient benefits, low premium rates, and sustainability while providing comprehensive product information for all types. Among the most widespread and successful microinsurance products
Source: DoF Powerpoint slide
are credit, term and savings life plans. These products are less difficult to offer than agriculture and health insurance, for which there is high and unmet demand. Some early-stage experience in offering innovative products can be found in India (weatherindex crop insurance developed jointly by ICICI, World Bank and Swiss Re and health microinsurance developed by VimoSEWA); Colombia (property insurance jointly developed by Munich Re, Suramericana and Women’s World Banking); Mongolia (livestock insurance jointly developed by the Mongolian government and World Bank); and Indonesia (flood insurance jointly developed by GTZ, Munich Re and Asuransi Wahana Tata). MIPSS which is managed by German Technical Cooperation (GTZ) in the Philippines will develop insurance products for natural catastrophes (natcat), index-based crop insurance, and innovations to the existing creditlife and PhilHealth insurance schemes with complementation from private health insurance. The natcat product shall be developed within the frame of a Public-Private Partnership (PPP) agreement between GTZ and Munich Re. Index-based crop insurance will also be piloted in Leyte province with the support of the European Commission’s Food Facility project in the Visayas. On the other hand, the life insurance and micro health insurance complementarity is the focus of the Technical Working Group together with PhilHealth and private insurance
Challenges remain in implementing index-based crop insurance By Christian Proebsting FILLING in forms takes time, and so does loss adjustment in the field. Traditional crop insurance providers struggle to provide cheap and efficient services to the high number of smallholding farmers in developing countries. In the Philippines, subsistence farming is commonly practices, especially for the two main crops: rice and corn. Small farmers barely have access to crop insurance products, which do not fit their demand. Even though products are strongly subsidized, demand is far from taking off. Administrative paper work and the delay between the damage occurrence and the payout are two of the reasons. Index-based insurance holds the promise of removing these obstacles by linking the payout directly to a transparent, objective and quickly measurable index. As soon as the index is triggered, the farmer receives the payout. A commonly used index is wind speed, measured as by
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weather stations, to predict the damage caused by typhoons. However, this simple reasoning is based on two strong assumptions: First, it presumes that hazards can be easily captured in its spatial and qualitative dimension. But measuring wind is generally done by weather stations, which are wide-meshed spread across an area. Collected data does not necessarily reveal information on the climate conditions in between those weather stations, especially in geographically uneven areas. Second, the index presumes that wind velocity and damage are strongly correlated. Depending on the insured asset, this might not be the case. The tropical storm “Pepeng” was relatively calm, but the accumulated rainfall induced huge losses that could not be captured by measuring the pure ‘velocity’ aspect of the hazard. The challenge in designing an appropriate index lies in reducing these two dimensions of the so-called basis risk, that is, the gap between the measured index and the incurred yield loss.
www.microinsurance.ph
Microinsurance will protect the poor from natural and health-related risks
companies. GTZ-MIPSS provides technical assistance as well to enhance the local enabling environment for microinsurance. It assisted the government and private sectors in jointly crafting the National Strategy as well as the Regulatory Framework for MicroInsurance, both of which will be launched in January 2010. Taking advantage of this newly created policy space, more market players are anticipated to begin developing and distributing microinsurance products. The use of mobile phones as a distribution channel is among the in-
novations currently under discussion. GTZ-MIPSS will also contribute to the development of a National Strategy on Financial Literacy to increase public awareness about microinsurance. Demand and impact evaluation The Microinsurance Network (MIN) that gathered during last year’s Microinsurance International Conference in Senegal generally concluded that only about 3 percent of the population in the 100 poorest countries have insurance protection. Though microinsurance outreach seems to be growing, these programs are confronted with a
The first challenge may be addressed by refining the network of weather stations. For instance, in some Philippine provinces the official PAGASA weather stations are complemented by other providers’ equipment. This could also mean the use of remote sensing, as satellite pictures might scale down to very fine resolutions. For instance, the NDVI (normalized difference vegetation index) is used in Kenya in order to estimate the drought-induced mortality rate of livelihood. There is a wide range of possible indexes, including the FAO Water Requirement Satisfaction Index, but they have all in common that they can only estimate the real damage. Finding the best estimator is a tough exercise and requires excellent data accounts,
dropout rate as high as 70 percent. In the Philippines, an estimated 2.9 million adults or about 5.4 percent of the total adult population are covered by insurance. Last year GTZ-MIPSS commissioned two microinsurance demand studies in the Visayas and in Mindanao’s Caraga region. The first study concluded that there is high demand for risk-mitigating solutions especially if related to sickness, loss of assets and loss of business activity due to calamities. It also found that indigenous systems and reliance on social capital only >> Turn to page 7
which are usually not available. And, on top of that, these estimators are usually crop- and hazard-specific. Another solution to the problem would be to try to solve the second challenge. The best estimator of the damage is probably the measured damage itself. Instead of measuring it for each farmer individually, however, one might do so for an appropriate area, e.g. the whole municipality as done by the Bureau of Agricultural Statistics in the Philippines, and using this as a proxy for the individual damage. How good is such a proxy? This depends on the spatial homogeneity of the affected crop in its vulnerability towards a given hazard. Appropriate homogeneity indicators might include elevation, soil quality, land use and climate zone-- and satellite technology might facilitate their analysis. In sum, one might tackle the problem of designing a good index via two ways: Either by availing of fine-resolution satellite pictures or by using an area-based damage index. Both methods reduce basis risk and avoid the administrative workload for farmers and insurance providers.
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By Christian Proebsting ELLING a Filipino that his country is prone to natural catastrophes is like carrying coals to Newcastle. The tropical storms “Ondoy” and “Pepeng” hit Metro Manila and Northern Luzon in September and October last year, triggering massive flooding and landslides and leaving more than 800 people dead and 1 million families affected across Luzon island. The damage to agriculture and infrastructure was estimated at close to P30 billion, according to the Office of Civil Defense. As a matter of fact, its physicalgeographical characteristics make the Philippines to one of the most hazard-prone countries in the world, as it is regularly affected by typhoons, floods, landslides, earthquakes, tsunamis and volcanic eruptions. Insurance schemes for the protection against these disasters are surely no panacea, but an inalienable tool to financially mitigate the resulting damage. Willing to introduce a pilot insurance product, German Technical Cooperation (GTZ) is currently scanning the Philippine archipelago to identify suitable regions. What are the criteria for this selection process? Risk exposure is surely one of them, whereby exposure to and relevance of risks may be two different concepts. Whereas the former is per se a more objective concept and can partly be captured by quantitative
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Crop harvests are vulnerable in a hazard-prone country like the Philippines Photos by Charlie David Martinez
Criteria developed for regions to insure vs. natural calamities methods (e.g. using geographical information systems (GIS)), the latter relies on the perception of the individual and is therefore a more subjective concept. The UNDP defines risk as a product of hazard, exposure and vulnerability. ‘Hazards’ are natural disasters, such as earthquakes, tropical cyclones, droughts and flood; ‘exposure’ is commonly defined by the
population living in a given exposed area, but may also be measured by the value of infrastructure or crops, and ‘vulnerability’ is determined by a society’s capacities to cope with disasters and may be approximated by the human development index. Based on this approach, the Manila Observatory designed risk maps for different hazards, showing Luzon and increasingly the Visayas as vulnerable to typhoons and Mindanao to El Niño-induced drought. Its own research using crop damage reports identifies Cagayan Valley as extremely risk-prone due to annual floods and periodical droughts. The implication ‘the higher the risk exposure, the better’, however, is not necessarily the right one. Everyday events are barely insurable, but selling insurance products against hail is not the solution neither, as it does not match the demand. Finding “good” risks, that is risks that the population perceives as such and that do not happen every year, is what to look for and asks for balancing on a knife’s edge. Facing high costs of damage assessment, traditional insurance www.microinsurance.ph
products struggle to serve the poor population. One proposed solution is so-called index-based products, where the index approximates the damage in a certain area. Such schemes are being tested all over the world and make use of an objective, easily measurable index, such as rainfall data, wind speed, water level and even satellite pictures to reduce assessment costs. Implementing such a product in the Philippines requires checking the availability of geo-data in different regions. PAGASA (Philippine Atmospheric, Geophysical & Astronomical Services Administration) has deployed weather stations in most Philippine provinces, but some regions are better equipped than others. Remote sensing via satellites might solve shortcomings of insufficient groundbased devices, and some agencies even provide data for free. Indexes, however, must not be that high-tech, as an insurance scheme against flood in Jakarta proves. The water level at a simple floodgate might approximate well enough the damage caused by submergence. When it comes to selling insurance products to clients, existing and efficient distribution channels are indispensable. The new regulatory framework on microinsurance allows for more organizations, such as MBAs and cooperatives, to act as distribution channels for non-life insurance products. Some of the cooperatives networks, such as CLIMBS and CISP, cover the whole Philippines, although they might have a stronger member base in some provinces. Finally, to guarantee success of an insurance product, it is crucial to ensure that a high number of potential clients live in the selected region. The socio-economic structure of the population reflected in the data on occupation, age and income, influence the final decision on where to launch a pilot. To sum up, the following are the main criteria for pre-selecting a suitable region: 1. Exposure to and relevance of natural catastrophe ris;k 2. Availability of geo-data; 3. Existing potential distribution channels; and 4. Socio-economic structure with a big part of the population being within the target group.
Key microinsurance stakeholders (from left): Joselito Almario, Deputy Director, National Credit Council; Melinda Mercado, Executive VP/CEO, Philippine Health Insurance Corporation; Gil Beltran, Undersecretary, Department of Finance; Jochem Lange, Country Director, German Technical Cooperation (GTZ); Eduardo Malinis, Commissioner, Insurance Commission; Dr. Antonis Malagardis, Program Manager, GTZ-MIPSS; Dr. Mar Wynn Bello, Medical Officer VII, Department of Health; and Dante Portula, Senior Advisor, GTZ-MIPSS.
Microinsurance ready for takeoff << Continued from page 5
cushion the early impact of a crisis. Likewise there is willingness to pay insurance premiums at a range of 20 to 25 pesos a month if amortized weekly or monthly. The second study also corroborated these findings. GTZMIPSS partnered with the University of Mannheim in Germany in gathering baseline information on the demand and perception of microinsurance among low-income groups. After the introduction of new microinsurance products this year, the university will follow through with a two-period assessment to determine the impact of microinsurance on the lives of policyholders. The university is using a scientifically accepted method of measuring the impacts of social interventions. MIPSS cooperation landscape The Department of FinanceNational Credit Council (DOF-NCC) is the executing agency of MIPSS with the Insurance Commission (IC), Department of Health (DOH) and Philippine Health Insurance Corporation (PhilHealth) as major partners. MIPSS uses the platform of a Technical Working Group (TWG) to discuss and decide on new products, policy, regulatory and strategy directions that benefit the insurance and microinsurance. Represented in the TWG discussions are life and non-life industry
associations, cooperative societies, health maintenance organizations, mutual benefit associations and other financial industry networks. Other government regulators are also invited as members of the TWG such as the Cooperative Development Authority (CDA), Securities and Exchange Commission (SEC), Bangko Sentral ng Pilipinas (BSP) and National Anti-Poverty Commission, all in keeping with MIPSSâ&#x20AC;&#x2122; inclusive approach. On the global front, MIPSS also cooperates and generates knowledge from the Microinsurance Network which is hosted by the International Labor Organization, as well as with the Access to Insurance Initiatives chaired by the GTZ Head Office that works closely with international development agencies. Microinsurance is a topic of growing prominence worldwide as it is in the Philippines. Last November 2009, some 400 experts from 64 countries including from GTZ participated in the 5th MI international conference in Senegal. Stakeholders in the Philippines were elated to know that the 6th conference will be held in Manila on November 9-11, 2010. GTZ and its capacity development program MIPSS are to play a major role in shaping the conference content aside from co-organizing the event. Munich Re Foundation is the main host and organizer.
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Capital Risk In Microinsurance Addressed Why reviewing RBCs is necessary and which are the key issues for microinsurance providers By Dr. Antonis Malagardis
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N the context of supporting the Insurance Commission (IC) to promote microinsurance (MI) development in the Philippines, it was considered a high priority to identify the need for changes in the existing capital requirements–specifically those related to
risk-based capital adequacy (RBC)–and thus contribute to both the growth of the microinsurance market and the financial strength of microinsurance entities to be setup in the future. In order to achieve these two objectives MIPSS experts analyzed four key areas: the traditional and MI markets in terms of providers, products, distribution channels and assets; the regulatory framework applied to traditional insurance
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companies and MI, in terms of laws and regulations, RBC requirements, supervisory approach and supervisory resources; the practical constraints that might exist in applying RBC to microinsurers, such
www.microinsurance.ph
as their organizational capacities and the availability of data; and differences in the risk characteristics of MI entities, as compared to the characteristics of more traditional insurance and insurers. RBC requirements were introduced in 2006, along with increases in the fixed capitalization requirements, and are currently under review. RBC requirements have been established for both insurers and MBAs. Required capital is calculated by applying factors to various risk parameters and adding the results within major categories of risks. The results for the various categories are not simply added together, but are combined with one another using formulas that are designed to recognize the interrelationships of the risk categories. Entities active in the MI market include mutual benefit associations (MBAs), commercial insurers and cooperative insurers. Many microinsurance MBAs (MI-MBAs) have very small operations. Differences between the MI business and traditional insurance business can affect the risk profile of MI entities. MI entities would seem to be subject to slightly higher risk than traditional insurers. Some of the differences subject MI entities to higher risk than traditional insurers, while some will tend to RBCs for MI in the Philippines reduce their risk. However, analysis carried out so far shows not significant differences to justify adjustments of the current RBC risk weights. The solvency regime is fairly comprehensive in nature, including controls on products and pricing, restrictions on the acceptability and valuation of assets, requirements on the valuation of liabilities, fixed capitalization requirements and riskrelated solvency margin requirements. However, certain aspects of the solvency regime make it unduly complex overall. For example, the fixed capitalization requirements are complicated and, because the Insurance Code has not been updated, the margin of solvency requirement still applies even after the introduction of RBC requirements. MI MBAs might invest in deposits with related MFIs microfinance Institutions and the risk here is minimal, assuming the counterparty is a regulated bank. As to the credit risk of MI-MBAs premium collection might be more difficult because of the irregularity of income and multiplicity of deductions. Most MI insurance is term coverage, although MBAs must refund at
least 50% of contributions upon termination after three or more years. Pricing is done based on aggregate claims data and premiums are not age-rated. Historical utilization rates might be depressed by lack of awareness of benefit provisions. Administrative expenditure provisions are limited to 20%. However, premium rates are typically adjustable every year. Underwriting is usually limited. Low income policyholders are more affected by contagious diseases, fires and natural catastrophes and MI written through a MBA might be geographically concentrated. These factors create higher underwriting risk but there are also factors that would decrease the risk such as the small face amount of the polices and the fact that policyholders might be known through relationships with a related microfinance entity. The net effect is higher risk, which could be mitigated by reinsurance or geographic diversification. Regarding the operational risk frequent transactions provide more chances for errors. MI is often written by smaller entities, which tend to have weaker internal controls while systems might be adapted from those of a microfinance entity and not fully suited to insurance. Additionally, MI-MBAs might be formed around existing groups, which raises the possibility of commingling of operations and funds with those of informal insurance schemes. The expert-actuary, who assisted MIPSS in reviewing the RBCs, has prepared a set of recommendations that includes the following: • The IC carries out a detailed review and further analysis in relation to the technical aspects of the recommendations; • The IC and DoF make policy decisions regarding the recommendations to be adopted, subject to stakeholder consultation; • All relevant stakeholders are consulted; • Further analysis is performed and the policy proposals are revised, as necessary; • Regulations are drafted to implement the finalized policy; • Other related activities are performed, such as revising reporting forms, training of supervisory staff and informing the entities; and • Depending on the extent of the changes that are made, transition periods–or testing the new regime over a year-end –might be appropriate.
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Social health insurance and health microinsurance schemes:
Conditions for possible complementation By Manolito Novales and Claude Meyer
social health protection. The “social” aspect in social health insurance should in fact argue for equity, solidarity and pro-poor principles. When social health insurance is IN most developing countries, one of the major hurdles unable to conform to these core principles and restricted to reducing poverty is the cost of medical care. When in serving its mandate, there might be a stronger justifia catastrophic illness strikes, for instance, the out-ofcation to push complementation between the two. It is pocket payments required in seeking treatment only noteworthy that the idea of social health insurance is to further impoverish low-income groups such as informal provide a more socially oriented and sustainable mechaeconomy workers. nism to serve a segment of the market that is in need. If The challenge to protect the poor from this vicious the scheme fails to see this as a clear direction, then a cycle has spurred various health financing mechamore feasible approach is to look at micro health insurnisms. One popular strategy is financial protection ance as a complementary coverage. through “risk pooling.” Microinsurance and social The National Health Insurance Program adminishealth insurance are two such schemes in which funds tered by the Philippine Health Insurance Corporation pooled from contributing members can buy coverage (PhilHealth) is the main social health insurance program against varying health risks. in the Philippines. Its mandate is to provide all Filipinos Traditionally microinsurance is the more private and with social health protection during medical crises especommunity-based scheme with a limited risk pool. Socially catastrophic illnesses. Co-existing with PhilHealth cial health insurance, on the other hand, involves larger are about 18 health microinsurance publics and thus a broader risk pool schemes that are implemented mostthat also promotes financial solidarly by cooperatives. The law creating ity among different social sectors (i.e. PhilHealth mandates that it should the rich subsidizing the poor). collaborate with community-based It is common for low and middlehealth insurance schemes to better income countries to have co-existserve the low-income informal sector ing microinsurance and social health segment of the population. In 2004 insurance programs, and the former PhilHealth embarked on a scheme does not necessarily transition into called “Kalusugang Sigurado at Abot the latter. Having these two systems Kaya sa PhilHealth Insurance” (or naturally provides members with opKaSAPI). PhilHealth through KaSAPI tions. If the idea however is to provide encourages microfinance institutions higher yet affordable insurance cover to enter into a group enrolment stratto informal sector members, whose egy with its informal sector clients livelihoods are unstable and vulnerain exchange for discounted premible to changing economic conditions, ums. KaSAPI however is still a work then there might be good reason to Informal economy workers need affordable in progress and the challenge at the aim for a workable complementation insurance cover too moment is to increase its penetration between the two. into the informal sector market and to And so the basic question is: Can better extend financial coverage. microinsurance and social health insurance complement The National Credit Council (NCC) is launching a each other to better serve the low-income informal workNational Strategy for Microinsurance which further reers sector? The answer is yes if the following conditions inforces the idea of strengthening the complementation prevail: between the national social health insurance program 1. The social health insurance scheme is weak and and the health microinsurance schemes. The strategy insufficient to financially protect low-income inforalso provides for private insurance providers to develop mal economy workers. Ideally, a social health insurance products that would cater to the low-income group to scheme should be comprehensive and aim for a higher supprovide affordable health financing with increased fiport value to cover the remaining costs of hospitalization. nancial protection. Realizing this however is not an However, there may be situations in which the scheme’s easy task if the sensitivity of the target group vis- a- vis support value is lower than out-of-pocket medical expenspricing, quality of services, and accessibility to health es and therefore requires a lot of strengthening and capacity care providers is taken into account. Developing a development. Complementation can exist if microinsurance complementary arrangement that is workable therefore is positioned as a transitory mechanism prior to migrating between the national social health insurance and the the target group to a stronger social health insurance sysmicroinsurance schemes would need careful planning, tem that can provide better financial protection. design and piloting, and to take stock of what would 2. There is no clear-cut policy or commitment from work and what would not. the social health insurance scheme to provide better
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www.microinsurance.ph
Household surveys were conducted in Caraga Region and the Visayas
University of Mannheim and GTZ preparing for microinsurance impact assessment in 4 regions By Markus Olapade IT is widely recognized that the poor have a need for financial services and that microfinance can be an efficient tool to grant access to credit and savings to those excluded from traditional financial institutions. The poor’s capacity to save and to repay credit has been acknowledged, and schemes to tap this capacity have been successfully developed. However, credit and savings are not efficient instruments to insure against large risks, such as major health hazards, accidents, disability to work, invalidity etc. Yet poor people often have only limited access to health and other insurance at fair and affordable prices. MIPSS aims to support the development of microinsurance products and institutions to serve the poor in order to protect them against large income shocks. So far, there is little reliable evidence about the social impact of insurance. It is yet unclear how effective and affordable insurance could be provided. New products are needed along with reliable evidence on how being insured affects a poor household. Delivering results on the impact of the newly developed microinsurance schemes is at the heart of the cooperation between GTZ-MIPSS and the University of Mannheim. The Mannheim research team led by Prof. Dr. Markus Frölich will
apply state-of-the-art techniques to identify the impact of microinsurance. The research aims at casting light on the impact of microinsurance on the ex-ante risk management of the household, i.e. how households’ preparation for shocks changes due to microinsurance, as well as the impact on the ex-post behavior and outcomes, i.e. how being insured affects the way in which households deal with shocks once they occur. With the support of GTZ-MIPSS, the Mannheim researchers will develop the impact assessment strategy in close collaboration with insurance providers and the regulatory bodies. It will feature a control-group design with random allocation and a large scale household survey in 2012. Besides insurance’s impact on the household, the Mannheim study can also deliver valuable information on specific issues of delivery channels by testing different versions of marketing, awareness creation, or pricing. The initial step took place in November-December 2009 through a survey of 1,000 households in the four pilot regions–Caraga and Eastern, Western and Central Visayas–to gather extensive information on the target population’s economic situation, health status and behavior in case of various illnesses. In addition, their awareness and understand-
ing of insurance products were assessed as well as their exposure to different risks and perceptions of those risks. The household interviews included experimental games which later on shall help the researchers assess the respondents’ risk aversion and time preferences: Does the individual put a much higher weight on today than on tomorrow and therefore does not prevent any events in the future? Or is it the other way round, meaning the individual is very concerned about the future and besides buying health coverage would insure anything from accidents to burglary to calamities? If only the respective insurance products would exist and be available! The Mannheim study also tested the financial literacy of householdheads to find out how capable they were of understanding insurance contracts that make heavy use of percentage figures. Initial results of this study for Region 8 show that about half of the respondents have an idea of what insurance is. However, when asked what exactly their understanding is, it shows that only about 20 percent seem to understand the concept of insurance. These findings need to be carefully interpreted although they stress the importance of raising awareness among the target population. The research team also tested the effectiveness of information material for insurance products already in the market but the results for this test are not yet available. The Mannheim study will focus on the impact of insurance on the household level and contribute to a more effective public awareness. J a nua r y 2 0 1 0 • MicroinsuranceNewsLetter
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By the Numbers* Social protection expenditure as a percentage of GDP:
25% 4.3%
= Europe = Africa
16.6% 2%
= North America
= Philippines
100 million 3% 70%
No. of people pushed into poverty in developing countries every year due to direct health care expenditure and lack of access to effective and affordable social protection
Percentage of 100 poorest countriesâ&#x20AC;&#x2122; population who are insured
81 million
PhilHealth beneficiaries as of December 2009
18 million
Individual paying PhilHealth beneficiaries
30 million
Insurance dropout rate in many poor countries
42 million
Potential clients of microinsurance in the Philippines, equivalent to 7 million families of six members each who are also the current clientele of microfinance
Informal sector population above poverty threshold
5%
30%
Percentage of Filipino population with insurance coverage
Average portion of hospital bill shouldered by PhilHealth
P175,000
Estimated maximum life policy coverage under microinsurance
P1,050
Estimated maximum amount of monthly premium
27.38 million 114,000 19% 20%
Total SSS membership as of March 2008 No. of domestic-helper SSS members out of an estimated 1.58 million
Share of self-employed in total SSS membership Percentage of self-employed who are actually continuing SSS payments
* Sources: National Statistics Office, UNDP, ADB, Government Financial Institutions, PhilHealth and Microinsurance Network
M
IPSS
Microinsurance Innovations Program for Social Security
icroinsuranceNewsLetter
Published by Deutsche Gesellschaft fuer Technische Zusammenarbeit (GTZ) GmbH Microinsurance Innovations Program for Social Security (MIPSS) Office Address: Insurance Commission Complex, 1071 UN Avenue, Ermita, Manila, Philippines
12 MicroinsuranceNewsLetter â&#x20AC;˘ January 2010
MIPSS Project Manager: Dr. Antonis Malagardis Phone: +63 2 353 1044-45 Fax: +63 2 353 1043 Email: antonis.malagardis@gtz.de Web: www.microinsurance.ph Contributors: Dante Portula, Christian Proebsting, Manolito Novales, Markus Olapade, Antonis Malagardis, Verena Bauer, Claude Meyer Layout: Nanie Gonzales Editorial Adviser: Oscar Gomez Printed by: Apple Printers, Manila, January 2010
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