Published in 3rd Quarter 2016
Insurance Journal: Kindly mention briefly your company GIZ
GIZ Response – Dr. Antonis Malagardis: GIZ in the German language is Deutsche Gesellschaft Für Internationale Zusammenarbeit or German Development Cooperation (www.giz.de) is a federally owned enterprise that supports the German government on international development cooperation. It has offices in 90 countries, and is present in 130 countries worldwide.
Insurance Journal: What is the role and contribution of GIZ in helping microinsurance spread in the countries, your company is operating actively?
GIZ Response – Dr. Antonis Malagardis: GIZ partners with Insurance Regulators in target countries on the formulation of supportive policies on microinsurance designed to develop this new and emerging segment of the market. We also work with the private sector, bringing them in public-private dialogues with Insurance Regulators to exchange on policies and laws that promote consumer protection and market development among various members of the Mutual Exchange Forum on Inclusive Insurance (www.mefin.org), a collegial body composed of Insurance Regulators and representatives of the private Insurance Industry in Indonesia, Mongolia, Nepal, Pakistan, the Philippines, and Vietnam.
In Pakistan, GIZ supports the development of microinsurance regulation in partnership with the Securities and Exchange Commission of Pakistan (SECP) through the Regulatory Framework Promotion of Pro-Poor Insurance Markets in Asia Phase II (GIZ RFPI Asia II).
Insurance Journal: How one should describe microinsurance?
GIZ Response – Dr. Antonis Malagardis: Microinsurance can have various definitions depending on the background and needs of target countries. In general, GIZ RFPI Asia II views microinsurance as insurance designed for the low income sector. It is simple, easy to understand, affordable and accessible. It is different from social insurance which targets the poor and is subsidized by Government. GIZ believes that for microinsurance to be sustainable, it must be based on the needs of the market, and free from unnecessary Government subsidies which can be variable over time and distorts market conditions. Microinsurance is similar with all insurance products in the market. Its distinctive feature is the observance of proportionality in all aspects — this means that the coverage, extent and content of regulation, product development, distribution, etc. must be commensurate with the level of exposure to risk.
Insurance Journal: If microinsurance is for the poor, the handlers of microinsurance are from well-established corporate institutions. How would you suggest there be some inter connect between the two. What measures you suggest that is simple and within poor people’s intelligence and microinsurance can reach their doorstep.
GIZ Response – Dr. Antonis Malagardis: A well-established insurance company providing microinsurance to the mass market sector is one of the important factors that will ensure the financial viability of said institutions to pay the microinsurance coverage and comply with all the stipulations of the microinsurance contact, particularly during catastrophic events. On the contrary, financially unstable insurance companies will likely pose a risk on its ability to compensate the insured when the assured peril is triggered.
A number of factors have to be met to ensure consumer protection: A Regulatory Framework on Microinsurance that is responsive to the needs, conditions and capabilities of the mass market sector must be crafted. It should align well, and is supported by the respective Insurance Laws of target countries. While the Microinsurance Framework encapsulates main requirements, such as definition of microinsurance, identification of the the target population, the products and the stakeholders necessary in the implementation of microinsurance, it must also be inclusive and must not be designed to meet the needs of selected companies, personalities or entities.
The design of microinsurance products must take into account the background of the target population, the average: age, educational attainment, financial activities, capacity to pay, and the distribution channel directly involved with the target group, amongst others. However, companies must design products with value to the customer. Not all cheap products have value.
There must be a careful study on the combination of price, the product features, limitations, and the approach and manner of explaining the product to the target population, to ensure consumers understand what they are buying. We must remember to explain to consumers that microinsurance is not the ‘magic bullet’ or the ‘cure all’ for all ills of the target market — it will contribute to the cure, but not solve all their problems.
Insurance Journal: Microinsurance is networking. Please explain and benefits that can be obtained from it.
GIZ Response – Dr. Antonis Malagardis: In simple terms, microinsurance is about sharing risk among all who have bought a microinsurance policy. When more people buy insurance, the more will share the risk. When an unplanned or contingent event happens to an insured person, the money from the rest of those who bought the microinsurance policy will be used to pay for the coverage of that contract. Therefore, when coverage is spread and not concentrated in one area, risk is spread across a given space. Spreading coverage across distance and period of cover or maturity of contracts in microinsurance is needed to spread and manage risk.
People insured with microinsurance policies are entitled to the compensation stated in the contract. People who buy microinsurance or insurance in general have a faster time to recover financially because they receive a specific amount of insurance cover based on the contract agreed with the insurance company.
Formalizing microinsurance products by using international standard practices allows the entry of global reinsurance providers needed to take the financial risk from microinsurance out of target countries.
Insurance Journal: At recently held microinsurance Dialogue at Islamabad where you had a pivotal role for its success. There was talk of Strategic Framework for Microinsurance development in Pakistan, would you please mention the main features of this Framework.
GIZ Response – Dr. Antonis Malagardis: The Strategic Framework for Microinsurance in Pakistan has five main objectives focusing on the revisit and establishment of a responsive and sound Microinsurance regulatory framework, growth outreach, documentation and institutionalization of diversified and sustainable business models, development of tailored microinsurance for multi-peril risks, and development of client awareness to ensure client protection of the target population.
Insurance Journal: Would you please share the recommendations made at the recently held microinsurance Dialogue in Islamabad.
GIZ Response – Dr. Antonis Malagardis: The dialogue between the public and the private sector discussion was very comprehensive and tackled various facets of microinsurance development in Pakistan. The discussions focused on the need to revisit the microinsurance framework, emphasis on consumer protection, and provision of space to the private sector to allow developments. Harnessing technology to promote market development was a priority. Companies focused on Financial Literacy and the need to explain the product features to customers, and be understood. Insurance companies emphasized access to effective distribution channels through sustainable business models. The creation of the right products for the right price using effective distribution channels was a priority.
Insurance Journal: In a country like Pakistan where Financial Literacy is low, religious belief and lack of awareness on part of people marketing and people purchasing microinsurance. How do you think these hurdles should be overcome?
GIZ Response – Dr. Antonis Malagardis: Microinsurance has to be understood by the target communities, using their own language, designed along the sensitivities of their distinctive culture, and combined with the financial soundness of the microinsurance products using international standards, to bring utmost value and protection to the masses. These microinsurance products must deliver the coverage that they promise in their contracts — therefore, they must be able to pay fast, within 10 days for example. It has to be driven both ways: from the target communities up to policy makers through ownership and feedback on various microinsurance interventions, and vice versa; with the participation of relevant public and private stakeholders. Microinsurance has to be paired with other services, like access to credit, to provide more value to the target customers.
Insurance Journal: Would you please briefly compare the success – index of microinsurance in Pakistan, Philippines and India.
GIZ Response – Dr. Antonis Malagardis: Massive development on microinsurance in Pakistan can capitalize on technology, particularly the use of mobile technology. Pakistan has begun the development of massive distribution of mass market insurance through mobile, which has to be underpinned a strategic policy framework on Microinsurance.
Philippines’ strength is founded on a strong Microinsurance Policy Framework which is driving market growth from 5 million policy holders in 2010 increasing to 34 million microinsurance policies in 2014. The policy framework has a strong ownership by the public and private sectors. India on one hand has a different approach, with Government providing premium subsidy to the private insurance sector, through a tender process. Under its Rashtriya Swasthya Bima Yojana health insurance program, Government provides 95% of premium subsidy to insure workers from the unrecognized sector below the poverty line, which is around 37.2% of the total population in India.
Insurance Journal: Where do you see microinsurance say ten years hence.
GIZ Response – Dr. Antonis Malagardis: With increasing incomes globally and more people graduating to the middle income sector, Microinsurance will be gradually progressing to the usual insurance lines. However, now is the critical period to start this transition> But first, we must explain the value and use of microinsurance to the target population and advocate the need to access the products approved by the Securities and Exchange Commission of Pakistan (SECP) now.
Insurance Journal: Any comment or suggestion you would like to make.
GIZ Response – Dr. Antonis Malagardis: The Regulatory Framework Promotion of Pro-Poor Insurance Markets in Asia Phase II (GIZ RFPI Asia II) is honored to partner with the Securities and Exchange Commission of Pakistan to support the development of microinsurance in the country. GIZ brings rich experience on microinsurance from other country members of the Mutual Exchange Forum on Inclusive Insurance Network (www.mefin.org), towards the development of a regulatory framework that is relevant, fit, and owned by all stakeholders in Pakistan.
In behalf of my company GIZ, the GIZ RFPI Asia II Program, and the MEFIN Network, we thank the Quarterly Insurance Journal for the opportunity to share our views on this important topic of microinsurance development in Pakistan.