Risk Management, Part 2
In class, we have just finished a section on microinsurance products. There is very little in the research literature about microinsurance. We focused attention on two areas–agricultural insurance and health protection products. Microinsurance is a relatively undeveloped product area in microfinance and is probably the biggest growth segment of this market. At least one of our interviewees has a life insurance policy from ADOPEM, the microfinance institution we are working with. I’m sure that it is sold by ADOPEM to protect repayment of their loans if the borrower dies.
There are 36 insurance companies domiciled in the DR. Only ONE sells agricultural coverage, specializing almost entirely on protection of the rice crop. In an island this small, it would be nearly impossible to diversify your risk portfolio if you are an insurance company.
We have found description of some very interesting models of health protection products–none of which are really medical insurance, but still function to ameliorate the monetary losses from medical problems. Here are two examples.
- Medical expense savings account (Burkina Faso)–you deposit $1 a month or more. When you accumulate $20, you can then begin to withdraw money to pay documented medical expenses. The MFI (microfinance institution) benefits by having a base of savings deposits and the family has a source of pre-saved money to pay for expenses, thereby avoiding the need for a microloan for a small expense. In this particular plan, after you reach the $20 threshold, you also automatically qualify for a microloan if there is a large expense bigger than the balance in your account.
- Medical insurance premium loan (Phillipines)–there is a national medical insurance plan, but it costs $26 a year, upfront, to join. The poor do not have this lump sum available so they don’t join. The CARD MFI program offers you a microloan to buy the coverage. You pay $0.60 per week, which covers the $0.50 for the coverage and the other $0.10 stays in CARD as interest income and transaction fee income. When CARD enrolls beyond some minimum number of people, the program can buy the coverage for the group from the national health insurance program at a quantity discount price, providing another source of profits for CARD.