Microfinance Focus, June 15, 2010: Aga Khan Agency for Microfinance (AKAM) is an industry pioneer in developing micro health insurance products. Realizing the fact that a near absence of health insurance, often leaves the poor impoverished due to illnesses and sudden causalities, AKAM opened the First Microinsurance Agency Pakistan in 2007 and the First Microinsurance Agency Tanzania in late 2008. To further extend its services, it has recently tied up with Pakistan’s New Jubilee Insurance Company (NJI), which developed micro health insurance products to be distributed through MFIs/NGOs to the uninsured poor.
PETER WREDE, MICROINSURANCE SPECIALIST
AKAM’s hospitalisation insurance, for example, helps families prepare for both expected and unexpected health expenditures by encouraging saving for the future and providing insurance safety nets for catastrophic events. The insurance safety nets kick in when households experience an event requiring immediate hospitalisation, such as accidents, obstructed births and acute illnesses. Other products protect families from the death of a breadwinner. Crop, livestock and asset insurance products are also being developed
In an exclusive interview with Microfinance Focus, AKAM’s Microinsurance Specialist, Mr. Peter Wrede discusses some of the complexities of Microinsurance products and the progress made so far. Before joining AKAM Mr. Peter was the Chief Marketing Actuary in Hannover Re. Here are the excerpts from the interview.
Microfinance Focus: Aga Khan Agency for Microfinance was among the industry pioneers in developing micro health insurance products. What factors in your opinion are essential to be considered before creating a micro-insurance product?
Peter Wrede: Firstly try to understand what people need and what people want. It may not be the same in respect of risk transfer. In the case of health microinsurance, the most important element is the existence of affordable quality health care providers to work with, and their willingness to cooperate allowing the degree of control necessary to limit overutilization and fraud; ideally you will also get special discounted fees from them in view of the limited payment capacity of the insured (and in exchange for more clients and more predictable cash flows).
For health and all other forms of microinsurance, further fundamental elements that need to be present include a communication channel to inform the potential clients, a distribution channel to get the insurance to the clients, and the enrolment information to the insurer, and a premium collection channel to get the premium to the insurer.
And of course, if you are not an insurance company yourself and don’t want to operate outside the laws and regulation, you will need an approved risk carrier like insurer, mutual insurance company etc. Once all that is in place, the procedures for operating and servicing the insurance are as important as the product itself – or you might consider it to be part of the product so that should be well established before the launch.
Microfinance Focus: In terms of healthcare what are the biggest financial risks for poor households that you have come across?
Peter Wrede: In patients hospital care can be much more expensive than any episode requiring only out-patient care: the really expensive things happen in hospital and take some days, and it is them that throw families into poverty and are particularly suited to be insured. Chronic illness also has the potential to impoverish families, but is more difficult to insure due to its long term nature and the fact that many people in your target market may already be suffering from it, so unless there is enough solidarity among the healthy insured you’ll have to exclude these pre-existing conditions.
Microfinance Focus: Given the premium or the cost of insurance, are the microfinance clients willing to pay for health insurance? What measure is AKAM taking to educate them?
Peter Wrede: They are often not willing to pay, and there is a general mismatch between what they are willing to pay for an insurance and what they can be observed to actually pay for the same services in the absence of insurance; that is because when asked for their willingness to pay insurance premium, they are not in a stress situation, whereas when required to make high medical spending decisions, a family member is actually suffering they are under stress.
Insurance can bridge that gap to some extent by reducing inefficiencies in health care delivery and passing on bulk purchasing power to insured individuals. However, it is necessary to influence people’s attitude towards insurance by raising the awareness of the risks that they face and by building up trust in the mechanisms we propose to deal with them.
Microfinance Focus: What medical benefits does your health insurance package include?
Peter Wrede: We insure hospitalisation – both cashless in our network of panel hospitals and via reimbursement in case of emergency treatment in non-network hospitals – and complement that with pre-paid medicine (such as out-patient consultation and ante-natal care at discounted fixed cost) and related services such as access to discounted drugs and lab tests and tele-consultation.
Microfinance Focus: What are the risks associated with health insurance products?
Peter Wrede: From the point of view of the insurer or facilitators, among the many risks there is a risk of lower than expected uptake i.e. less people than expected buy the insurance, higher than expected claims, if premium is not enough to cover claims, the risk of higher than expected operating expenses and margins are not enough to cover costs, and the usual business risks of fraud, misunderstanding, disruption of partnerships, failure of partners (e.g. to scale up), turnover of trained / key staff, natural calamity, civil wars etc.
Microfinance Focus: The insurance products need to be adapted to the heterogeneity of the customer base. Can you elaborate how AKAM customized its insurance products according to the different regions and customer base that it is serving?
Peter Wrede: Giving an overview I would say that the main distinctions are urban versus rural, because both the morbidity and the available health care infrastructure differ considerably and again they differ from city to city and from rural area to rural area. Other parameters that affect the product design are willingness/ability to pay and the priorities of your local distribution partners. In addition, you may want to address different health issues with different products, e.g. hospitalisation without maternity and a dedicated maternity product for pregnant women being sold at the same time in the same market.
Microfinance Focus: Can we get an estimate of the number of clients getting benefitted by AKAM’s micro health insurance worldwide?
Peter Wrede: Currently close to 60,000, all in Pakistan so far.
Microfinance Focus: With New Jubilee Insurance Company, AKAM is following a ‘partner-agent model’. Are you following a similar model in other regions also? What are the benefits of this model?
Peter Wrede: Yes, we are following the same model in East Africa with the Jubilee Insurance Group, and look forward to establish similar ventures in other countries with insurers that are not part of the Aga Khan Development Network. We believe that the benefit of forging a strong trusting relationship with one reputable and top-class partner outweighs the potential benefit of shopping around the cover in the market as brokers would do; because we also assume that there is not enough supply for health microinsurance to provide a choice of insurers.
Microfinance Focus: What is the average cost of your insurance products?
Peter Wrede: 3 USD per person per year
Microfinance Focus: Which technological tools has AKAM deployed to achieve efficiency in micro-insurance services?
Peter Wrede: So far our attempts to deploy technology such as smart chip cards have not been successful.
Microfinance Focus: Which technology platform AKAM is using for micro-insurance. What features does this platform holds and how satisfied are you with the performance?
Peter Wrede: We opted for Gradatim’s MF-Insure because it is web-based, providing the functionality we needed like data collection/warehousing/aggregation/query, and claims management support, also to our distribution partners at the point of sale, providing an offline functionality to overcome limited internet access. We were comforted by the fact that Gradatim had track record in the field, and we believe in software as a service. So far, we are satisfied with their support and service during the customisation of MF-Insure to our products and processes, and early end user feedback is positive.