Livestock Insurance Book

This is an edited version of an e-mail letter Carlos Ani (carlos@careiffd.org) sent to a number of those involved in micro finance issues:

Dear Coalition Members

During the recently concluded First International Discussion Forum on Micro-insurance, there were discussions about the risks poor people face in terms of property losses. They lose assets and properties due to fire, cyclones, floods, and epidemics. One type of property insurance is livestock insurance. Mr Vijaya Mathema, General Manager of Nepal’s Deposit Insurance and Credit Guarantee Corporation (DICGC), has just published a book entitled Livestock and Livestock Insurance in Nepal, which discusses the principles, workings, and mechanics of this type of insurance.

There are numerous banks and MFls that provide loans to poor and low-income households in Nepal to purchase livestock, mainly cattle, for growing, fattening and/or dairy milk production. To guard against losses due to the death of their livestock, owners purchase this insurance coverage from the DICGC, which reimburses the bank/MFI in case the cattle die. It effectively frees the poor household from the burden of paying back the loan.

The book also talks about insurance programmes in other countries. It is an excellent guide for those MFls/banks interested in this kind of product. To order a copy of the book, write to Mr Vijaya Mathema at kunj@col.com.np or dicgc@wlink.com.np The book costs US$15.00, which includes mailing to anywhere in the world.

Carlos Ani

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Marketing micro insurance
This is an edited and shortened version of a ‘round robin’ email Mosleh Uddin Ahmed (mgitterman@swwb.org) sent to a "virtual conference on micro insurance".

As a commercial life insurance company, Delta Life needs to sell its micro insurance product literally by door-to-door visits as, unlike NGOs/MFIs, it does not have a member group base. Selling is done through a large workforce of around 20,000 part time field staff working out of nearly 1,600 offices.

Delta’s experience shows that poor people are reluctant to buy insurance for a number of reasons.

One is a lack of confidence. With insurance, one has to part with money first and the benefits come later. People are not sure whether the insurance company will fulfil its commitment in the future.

There is also unawareness of the existence of insurance products, or that they are affordable.

Some people object to insurance on religious grounds; one must trust God to look after things. Some Muslims believe that life insurance is prohibited by their religion.

Delta addresses these concerns by recruiting staff locally and we try to persuade village leaders to take out insurance so they can be cited as examples to the potential policyholders of that village. When insurance claims are paid we publicise them locally. Canvassing and meetings in market places raise awareness. We advise people to talk to their religious leaders if they have concerns in that area, and to take out a policy only if they are convinced.

Mosleh Uddin Ahmed
Delta Life Insurance Company Limited
Bangladesh

More on insurance
Ramesh Arunachalam (r_arunachalam@hotmail.com) sent round an e-mail message to many involved in micro finance on the subject of insurance. Our ECLOF president in Cameroon responded to him.

Dear Colleagues

The most crucial aspect for the viability of a micro insurance scheme is its ability/capacity to make a pay out when required.

This is something that has always scared me because I believe that many MFIs simply do not have the financial strength to make a pay out to all clients, if required. It is one thing to say, "No, we have studied the risk and also tried to mitigate it, etc", but entirely another to throw up your hands and say, "Sorry, but we simply cannot make the pay out to all clients because we just do not have the financial capacity."

The point is, if required, the micro insurance scheme must be able to make a pay out to all clients, as it is under a contract (formal/informal or explicit/implicit) to do so. Not being able to pay (under any circumstance) is tantamount to reneging on the contract (such instances affect the credibility of the service provider and the industry as well).

I provide two examples in support of my argument:

Should MFIs offer insurance schemes for which they may not have the financial strength? Would it be better to provide insurance linkage services to their clients (act as intermediaries) and leave the task of insurance provision to specialised companies (private or government) that can handle all aspects (including financial) in a professional manner?

Both from the perspective of risk diversification and also financial strength, the latter seems a better option.

There are many places in India where small schemes or even large schemes (like the prawn project) have failed. Getting clients on board for fresh micro insurance schemes in these areas is a daunting task.
I would be happy to get reactions, as well as to learn of other experiences.

Ramesh Arunachalam

From: Alice Kengne Youmbi, President of ECLOF Cameroon.

Dear Ramesh

Having studied insurance at university, and because at ECLOF Cameroon we are discussing the advantages and inconveniences of a risk management fund, in order to decide whether to have one or not, I here give two solutions to avoid being in uncomfortable situations like the multi-donor prawn culture project, or the small NGO/MFI in northern India.

The main difficulty of these two projects is that they had to face their problems on their own when bigger risks than expected were realised.

The crucial question is how to plan for such cases so that they are not a surprise when they arise. Then, what practical solutions should be implemented to help a micro insurance organization not have to face the consequences alone? What extraordinary planned answers to extraordinary unexpected problems are possible?

For your first example, the answer is horizontal re-insurance, and for the second, vertical.

Horizontal re-insurance

This means that all micro insurers within the NEC’s network, or a larger network, re-insure one another. Risks can then be taken which could turn out to be bigger than a single micro insurer could manage on their own. Creating a Re-Insurance Fund into which each micro insurer within a network puts a small percentage of what it receives from their clients is one possibility. This fund then covers a large part or the total amount of a pay out in case of rare but realised big risks. In this way, risks and difficulties are shared and micro insurers do not have to face big problems alone.

Vertical re-insurance
Still assuming that "two are better than one", each micro insurer re-insures its own risks with a bigger, professional and solid insurance body, thereby paying part of premiums received to that second level insurance, which will provide cover when bigger troubles arise.

This second level insurance can also re-insure itself at a third level and so on. The aim is that nobody should be on his or her own in the face of unpredictable events.

Of course, the best solutions would be those combining both horizontal and vertical insurance.

Alice K Youmbi