Microinsurance: A New Instrument for Social Protection

Cerstin Sander

Notes from the ILO workshop on 'Microinsurance: A New Instrument for Social Protection' (Dar es Salaam 11-13 July 2000)


Anyone interested in the topic and in getting involved should recognise the dynamism in this line of 'financial products' with diverse approaches and growing experience to consider. ILO is one approach that leaves open a number of questions as do other approaches.

This ties in with MicroSave's work on setting up a Centre for Microinsurance as well as other international developments such as the CGAP working group in the process of being established and WIEGO action research and networking. A clearing house such as the proposed Centre that can provide information, analysis, and debate that is not tied to any one approach or interest would certainly be a great value added to further evolving in different types of (quasi) insurance financing.

A key role for donors can be support to the cost and risk of product development and pilot testing through direct financing and/or underwriting. It will be important to do this with a design that collects data necessary for insurers to consider underwriting and engaging them early on.

ILO Workshop in DSM, July 2000

Workshop participants came from Kenya, Ethiopia, Uganda, and Tanzania (in order of # from least to most present). The group represented considerable expertise in microfinance and/or micro'insurance' in those countries, particularly health schemes from or with NGOs, MFIs, hospitals, and a donor. The trainers were Marc Socquet and Kees van der Ree (ILO Geneva - STEP Programme), and Annette Schaap (ILO, Training Centre Turin) supplemented with presentations of experiences by a couple of resource persons and participants.

The focus was on promoting the ILO STEP approach of community- or group-managed schemes. The material presented by ILO was in parts interesting, stimulating fruitful exchange of experiences and approaches among the participants; in parts, however, it was too generic or basic to be useful, e.g. a one hour lecture on the evolution of social security systems in Europe and North America.

The ILO group-based approach is one among a variety of approaches of microinsurance schemes. To date most schemes focus on either life or health insurance. The workshop focused on health with brief presentations on some models and experiences with life insurance. I was left with the impression that the experience with the ILO approach is still in its early stages also limited in terms of size -- few and small groups participating in the pilot schemes.

The basic issues are accessibility and quality of health care. The ILO approach clearly stems from a philosophy of community or self-help group-managed solutions to public sector or welfare system gaps in social protection such as in health care. Hypotheses are that, especially in rural settings or the urban low income communities, groups (community groups such as burial groups or associations, eg. of microbusinesses) are best placed to manage a microinsurance scheme and can bear pressure on the health unit and/or other local health care providers to improve the quality of their services.

Some Points for Reflection

Insurance, savings, risk pooling

The terminology of insurance or microinsurance can be misleading. Insurance is a regulated industry with requirements that likely most microschemes are far from being able or even wanting to meet. Schemes that are actually user-fee-savings-groups are not insurance but a form of liquidity management and risk pooling. ILO's terminology of 'mutual health protection schemes' or 'community/group-based health financing' reflect this distinction.

Whether a health care savings scheme has a function of quasi insurance depends on what it covers. If the services are clearly capped, the emergency or disaster an insurance is often intend to cover, will not be covered. For instance, some hospital schemes exclude inpatient care and thereby cordon off the area of highest financial risk.

Spectrum of different approaches with different philosophies and implications

From a risk allocation perspective, the spectrum for micro-health insurance schemes runs from group-managed to provider-based to insured/underwritten. These can be initiated, attached to, or marketed through NGOs, projects, health units, Ministry of Health, health providers, MFIs, or insurances.

Self-managed group schemes offer a savings pool to cover e.g. health unit user fees. The contributions to the savings pool can be determined by looking at the average use, the cost of user fees, and, if necessary, capping the service to a certain number of visits or, where there is no user fee, capping the types of services covered. Measures of adverse selection are also critical. One common solution to this is the requirement of a minimum of 60% of the group (e.g. burial group) or business association has to 'subscribe'. An additional mechanism is a waiting period between entry into the scheme and eligibility date for first use of services.

Provider-based schemes tend to be offered to groups rather than individuals to account for adverse selection

  • They tend to clearly define the services covered. In its most financially conservative form, this approach is a form of pre-payment with some cost-sharing by the participants. The provider will be careful to set the contributions to cover costs.

    Ideally a provider seeks risk protection through some form of underwriting, be it from insurance or from a donor fund for instance. Their 'insurability or underwritability' is likely much higher than that of groups, especially low-income groups.

    Feasibility, sustainability, and market segmentation in social protection

    Risk pooling, risk profiling, adverse selection, etc. all invite reflection on broader targeted schemes. >When fees are pre-set or services can be clearly capped, expanding to other income groups could conceivably improve risk management through size of revenues to the scheme on the one hand and through diversification of the risk profile of members on the other.

    Reducing cost of marketing and collection of contributions is another aspect. Business associations and MFIs are excellent entry points for any scheme in that regard, as well as regards implementation of rules of adverse selection.

    Some Open Questions

    Open questions are many, but here are a few that emerged especially with the workshop focus on group-managed approaches:

    • What is the liability scenario in case of 'over-use' e.g. epidemics? (what do the agreements between the community groups and health units, for instance, stipulate?)
    • Is the group-managed payment of medical fees compatible with medical code of ethics (e.g. doctor - patient confidientiality) ? In the ILO approach, the group sees a fee invoice per member visit.
    • Have the pilots been successful in communicating the concept? Do people understand their rights and risks? Some experiences in Uganda and Tanzania suggest confusion and basic questions
    • One difference, as one discussant put it, seems to be that people have a shared value regarding helping out with funeral expenses but not the equivalent value re: shared health care cost.
    • Under what conditions can the approach be sustainable?
    • Can the groups be sustainable without a parallel support system providing a monitoring and support function re: group and health provider accountability (financial and medical; e.g. controlling overprescription or expensive prescriptions -- insurances have medical doctors to check claims) ? Or can they be better integrated with other 'systems', e.g. where available MFIs for accountability in collection and provider payment?
    • Is a small savings pool of a group sufficient or would the pool have to be enlarged by forming larger pools from grouping together the small pools?
    • Does it work in the case of paying actual services as well as in the case of (subsidised) user fees?
    • How does the political environment affect the schemes, e.g. in Uganda promises of free health care?

    Kampala, 1 August 2000, Cerstin Sander, cs_sander@yahoo.de (Perceptions of the author not opinion of the employer.)

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