Omer Imtiazuddin is the Health Portfolio Manager at Acumen Fund, where he has been since 2006.
Studies have indicated that up to 25% of those hospitalized in South Asia fall below the poverty line. In large measure this is a result of hospital related expenses (the situation is similar in sub-Saharan Africa). Microinsurance has the potential to shield these families from such shocks and to help them to maintain a minimum standard of living. It can also provide them the opportunity to bounce back from illness, to take active charge of their economic and social position within society. And as research in this field has demonstrated, significant percentages of the poor do not seek healthcare because of the cost. Thus microinsurance can also promote health-seeking behaviors.
The primary focus of our investment in First Microinsurance Agency (FMIA) in Pakistan is in fact Health Insurance, though the company also offers credit life insurance and is exploring agricultural insurance. We also expect that some of our other portfolio companies might benefit from becoming customers or partners of FMIA. But there will be a steep learning curve for both established and start-up companies considering the use of microinsurance services. Many established companies have, at least at the outset, treated microinsurance as more of a CSR play than potentially advantageous service. Start-ups, while better prepared to embrace the opportunity, and more inclined, often do not have the protocols and systems in place to adequately respond. As we become shrewder in our understanding of microinsurance, this will of course change. But it will take time.
And certain strategic networks and/or partners will be important for companies that want to start extending microinsurance to the poor. From a customer acquisition point of view, partnering with organizations that can provide for a large group of people will be important (e.g. MFIs) in order to quickly reach scale and lower costs. It is also very important to partner with a wide variety of clinics and hospitals to ensure that we are providing genuine access to the poor. Finally, the government too may come to play a crucial role in providing microinsurance to the poor.
Economic and political stability will be essential for the facilitation of innovations and investments in microinsurance. If we take Pakistan as an example, where inflation is now officially running at 25%, it is hard to convince a customer that health insurance, which is a new product to begin with, should be considered a necessary addition to their already constrained budget.
Taking a long term view will be crucial to enabling the spread of microinsurance. If we use microfinance as an example, we need to be cognizant of the fact that it took 30 years for Microfinance to be as widely developed as it is, and there is still room for further growth. Those now working in microinsurance should be able to utilize some of the lessons of the microfinance revolution, so its growth should be quicker, but it will still require long term vision.
I agree with your point that “taking a long term view will be crucial to enabling the spread of microinsurance.” For insurance providers working with clients who are unfamiliar with risk management and insurance concepts, a long-term approach should and probably must include insurance education–not only about the products on offer, but also about the need for proactive risk management in the first place. Self-financing broader consumer education, however, remains a challenge for microinsurers. We’re working to define and answer these and other questions about microinsurance at the Financial Access Initiative. For example, see the description of our “Consumer Education in Microinsurance” project on our website.
Reply to Catherine Burns