In India more than 90% of the workers are in the informal sector, of the total women workforce almost 94% are in the informal sector. In 1992 through the collaborative effort of SEWA, SEWA Bank, the Life Insurance Corporation of India (LIC) and the United India Insurance Corporation of India, an integrated insurance program was started insuring women for life, health, assets, widowhood and accidents. The scheme now covers 90,000 women and men and is also linked to fixed deposit schemes at SEWA bank where the interest can pay premiums (SEWA 2000). In the last few years SEWA Insurance have been faced with a number of challenges, despite severe drought conditions LIC increased its annual premium by fifty percent (Rs 7.50). Heavy rain and flooding in July resulted in over 1000 claims for damages to houses and work tools, the earthquake of 2001 resulted in over 600 claims alone and lower interest rates meant that larger fixed deposits would be required (SEWA 2000). Without access to reinsurance the viability of the scheme is very much at risk from exposure to such large losses even with assistance from the GTZ fund, the insurance industry and SEWA family. The high capital requirement of Rs 100 crores ($23 million) prevents SEWA entering into the mainstream as an insurance company and accessing reinsurance markets. SEWA therefore needs to spread the risks of the scheme across a larger number of people and different income groups to try and achieve sustainability of its operations. With the assistance of a group of donors led by CGAP, SEWA has put together a business plan which forecasts full operational viability by Year 6 (2008). To manage the enhanced volumes of business and services required SEWA need to have in place professionals with technical and managerial skills different to those required by a trade union. To keep costs low there is a requirement to invest in computerization and make information flow and administration more effective and efficient. There is also a need to build up a reserve fund to cover the sharp increases in claims from catastrophic events. Without external funding and support, sustainability and full operational viability could not be achieved in the near future.
During my visit to SEWA in November 2001 I discussed with policyholders in two slum areas one rural and one urban in the Ahmedabad district on their need and understanding of insurance. Within the group of women the SEWA village representative was the most informed in terms of the coverage, exclusions and working of the insurance policy. There were quite a few women who had made claims and were very pleased with the reimbursement they received, however, there were some women who had not renewed their policy when the term elapsed as they had not made a claim. Within the villages there was still a large number of people without coverage, this was due to lack of affordability or lack of trust in insurance due to previously badly run government schemes.
The SEWA village representatives did not appear to have the right skills to educate the clients and there was no financial incentive (commission/bonuses) for them to increase the number of policyholders and maintain existing ones. Some members did not realise that their premiums would not be returned if they did not make a claim, others were not aware of the exclusions in the policy and limitations of coverage. When a SEWA claim is not paid the credibility of the policy is destroyed throughout the village, bad news travels fast and currently there is no effective mechanism in place to explain why claims are denied not only to the policyholder but to the village as a whole. If a genuine misunderstanding has taken place then premiums either should be returned or carried forward another year (although this should be done carefully as not to form a precedent). The benefits of long-term protection for policyholders and their families even if a loss is not incurred immediately, and the understanding that more people into the scheme would lead to lower premiums and/or additional coverage, is unclear. There are no incentives in place for current policyholders to remain claim-free using premium deductions or additional coverage. The benefits of risk pooling was not clearly understood and neither was the fact that the long term sustainability of the SEWA scheme depends on members not undertaking fraudulent or risky behaviour. When claims are paid the benefits of the policy need to be promoted, this is important where the member has had a policy for a number of years without making a claim. Subsequently, examples of those that did not have insurance and suffered a loss should also be made available to non-policyholders.
There needs to be greater research into the elasticity of premiums of SEWA members, many members did not feel the premiums were too high and may be able to pay a little more. Others felt it would be easier if they could make smaller regular payments than a large one off payment. The idea of the village representative collecting monthly premiums and then SEWA collecting on a quarterly basis was seen as a possibility to encourage other less well off to participate into the scheme or buy into additional coverage. Many of the members were unwilling to take time off from working in the fields to spend the necessary time in the hospital, others could not afford the costs of travelling to a treatment centre and instead paid extortionate prices to mobile general practitioners. Convenience is just as important to the poor as the price. Encouragement is needed for those that cannot buy into the scheme to access coverage, either by special donation schemes or by the village community contributing a little extra to pay for those that need the protection the most. (This could be something that is implemented using SEWA’s surplus in future years). The immediate resources of SEWA need to be directed to educating and encouraging the policyholders and motivating the village representatives to market products and control and monitor claims. The right infrastructure needs to be in place to provide efficient and effective services to a growing number of poor clients.
Case study 2: The Asian Confederation of Credit Unions (ACCU), Bangkok, Thailand
Formed in 1971, ACCU represents 15 national movements serving over fourteen thousand credit unions with nine million individual members in thirteen countries. The mission of ACCU is to promote and strengthen credit unions to enable them to facilitate the socio-economic development of people (ACCU 2000a). A number of credit unions have undertaken micro-insurance programs predominantly providing protection against savings and loans. However, the nature of insurance is far more complex than providing credit and savings products and a number of credit unions are experiencing difficulties in providing sustainable and viable programs. In May 2000 ACCU invited myself and two ICMIF insurance consultants to facilitate a workshop on strategies and alternatives for loan protection and life savings programs in credit unions. The 20 participants represented 10 organisations of credit unions and co-operatives and discussed the challenges and opportunities facing member-federations on insurance business. A number of problems were outlined over the two day workshop but two central concerns were highlighted which were preventing adequate and affordable insurance products to be provided to the poor. Firstly, the high regulatory requirements in respect of minimum capital meant that small insurers providing at the local level were operating on an informal and illegal basis. Previously, credit unions in Bangladesh, Indonesia and Sri Lanka were provided protection by CUNA Mutual, an American credit union based insurance company. The withdrawal of CUNA Mutual in 1998 from these countries meant there was now a critical problem in obtaining reinsurance cover and ensuring the solvency of the schemes. Without reinsurance the level of cover and nature of risk protection provided to the poor is limited to the premiums and reserves of the credit union, this is minimal as with low-income households premiums are small and reserves difficult to accumulate. The second issue raised was the need for technical expertise, providing insurance on a prudent basis for credit unions is a complicated process, without adequate underwriting, actuarial and business planning expertise available the credit unions have found it difficult to pay claims promptly. For the credit union these skills are unavailable in the local community and too expensive to purchase on the open market (ACCU 2000b).
Appendix Four
Providing insurance products to the poor using the co-operative structure
Case study3: Mutual health organisations in Mali
Mutual health organisations (MHOs) and Community-based health insurance schemes (CBHI)) are community and employment-based groupings that have been growing progressively in West, Central, South and East Africa. Whilst these are small and medium sized organisations covering a small fraction of the population, they provide significant contribution to health care access to people in informal and rural sectors. MHOs in Africa usually grow out of mutual aid organisations set up initially to provide members with a range of social security benefits such as funeral grants, birth allowances and retirement benefits[48]. Health care benefits are designed to improve members’ access to quality healthcare by spreading the costs and risks of members’ illness and provide acceptable facilities where ones do not exist. The growth of MHOs have been supported by governments and donor agencies who have recognised the potential for increasing access to health care services to otherwise under-served communities. The contributions MHOs levy on their members are not excessive in relation to average income [49]. Most MHOs have standardised organisational structures that involve members in decision-making and require accounting and transparency from managers (Atim 1998).
In Africa MHOs lack training in administration and management areas including MHO-specific skills needed to deal with providers, check appropriateness of healthcare, ensure accurate costing, set premiums and benefits correctly and support preventive health measures and education. Whilst the provision of existing social security benefits are relatively easy as they require a simple savings scheme, health insurance benefits are more unpredictable and require a certain degree of actuarial expertise. Voluntary schemes in Africa have a penetration hardly rising above fifty percent, due to long waiting periods or no options in paying dues in kind. Provider owned MHOs lack effective independence to ensure that members are obtaining sufficient quality of care. There are other problems facing MHOs in Africa such as morale hazard, adverse selection, costs escalation and fraud. To tackle these issues the MHO relies on its strong solidarity culture to enforce a social control on any potential abuse[50]. MHOs in larger villages operate a system of deductibles, co-payments, mandatory references and ceilings on coverage (Atim 1998, Musau 1999).
Mali is the first to create a nation-level MHO development and support agency, the Union Technique de la Mutalit Malienne (UTM), which is assisted funded by Fonds d’Aide la coopération (FAC) and assisted by FNMF(Mutualité Française). Mali is also the only country in Africa that has developed legislation specifically for mutual organisations (Atim 1998)[51]. In the late 1980s, as with most countries, Mali abandoned the principles of free state welfare provision and introduced a system of user fees. Almost 80% of the country work in the informal and rural sector and do not have access or cannot afford user fees. A special program was put in place to develop mutuals for health with the assistance of Cooperation Francaise and its technical partner FNMF, in collaboration with the UTM and Mali government. There are many types of mutuals in existence in Mali covering different professions, some mutuals do offer funeral cover and a basic life insurance cover, but no insurance on health. The objective of the program is to use the existing solidarity of the mutuals, its member focus and not for profit basis as a cost effective and efficient way to distribute health insurance schemes to the poor.
The mutual for cotton farmers in Nongon was used to test the feasibility of providing health insurance products. In 1994 the mutual successfully created a community health care centre, and in 1998 a contribution of 5 CFA per Kg of cotton was asked as contribution to a health insurance scheme. The strong priority of health as a means to ensure continuos work and continuos income provided a high demand for the scheme amongst the cotton workers. Today the scheme is successfully providing benefits to women for maternity, child benefits up to the age of seven and benefits for men up to 50% of consultation and prescription.
The success of the scheme encouraged UTM with the assistance of FNMF to launch two health guarantee products in Bamako using the mutual networks in existence. The first product covered 60% of expenses relating to doctor’s visit and prescribed drugs, the second product covered 75% of hospitalisation costs. The health provider claims the insured portion of costs directly off the mutual releasing the policyholder from the burden of advance payments. Members are requested to provide identification cards when receiving treatment, there are a select number of healthcare providers that participate in the scheme and an agent is based in each hospital to verify and expedite the claims procedure. UTM negotiates and signs on behalf of all the mutuals to ensure that the best prices for medicines are obtained. This guideline prices list is distributed to each mutual, which is required to check each claim for appropriateness. Every month all health centres and all mutuals send in their data on fees and services to UTM, who then carry out a random sample check for each mutual to detect fraudulent behaviour. To be eligible for participation in the insurance scheme the policyholder must be part of the Association de santé communautaire (ASACO) through registration with a community based health centre. The scheme is reliant on the existing solidarity of the mutuals to gain sufficient numbers and avoid moral hazard, consequently the scheme is voluntary and does not exclude pre-existing conditions. The collection of the required premium is done over a year in small regular payments through a health savings plan, this makes it easier for the policyholder to pay the premium and enforces a minimum waiting period of one year. UTM provides resources to undertake educational workshops and marketing of the scheme to the members of the mutual, UTM is also responsible to ensure that sufficient reinsurance on the scheme is available. FNMF also has an important role to play in supporting the scheme: it provides necessary equipment to rural health care centres to ensure that adequate health care is available, it strengthens the link between the health centres and the mutuals, it undertakes actuarial studies and trains doctors and mutual personnel.
Whilst the scheme is still subsidised by Cooperation Francaise, there are promising signs that the sustainability of the scheme can be achieved and the scheme can be spread to other target areas. However, this is still a long term goal, there are still many difficulties to overcome, such as affordability, education, communication and infrastructure but in the short term the signs are encouraging in respect of the benefits the scheme is providing to the livelihoods of the poor (Samantar 2001).
Source: Kulmie Samantar, Head of International Development, FNMF
Appendix Five
Successful co-operative insurance companies
Case study 4: MACIF – France
MACIF is the largest French automobile insurer for retail and commercial sectors, formed in 1960 it now serves over 5 million policyholders. In order to ensure greater and real policyholder influence the company in the mid-1980’s established 11 autonomous regions with its own board and management. The delegates of the regional board and committees represent the opinions and concerns of 2,500 members each. These delegates are trained in premium calculation, products, finance and involved in decision making process on rate increases. The national general assembly elects the national board and management, and is made up of regional delegates. The policyholder is informed of his or her rights and responsibilities as a member of MACIF and is gradually encouraged to become active in the operations of MACIF, by firstly voting for a regional delegate and then to become involved in policy setting (ACME 2001).
MACIF also funds projects dealing with job creation and re-training the long-term unemployed. One example is cars belonging to MACIF policyholders that are total write-offs, are dismantled for useable parts which are repaired and sold on. This project provides employment and a two-year training course leading to qualifications (ACME 2001).
Case study 5: FNMF - France
Mutualité Française, the Federation for French Health Mutuals, comprises of 3,000 companies providing supplementary health insurance and health care services to over 30 million people. The costs of healthcare in France is less and less adequately reimbursed by the mandatory system of national health insurance, the additional reimbursements from mutuals enables access to proper treatment. FNMF has made healthcare available to everyone, regardless of income, it has 1500 facilities established across France, with some located in disadvantaged areas. The Mutual pharmacies are developing their own range of unbranded products at lower costs to enable greater access for the poor.
FNMF also provides programs to promote public health and wellness in schools, neighbourhoods and local missions and publishes a journal “Health and Work” to inform on health issues and working conditions. Continuous research is carried out to improve the quality of healthcare and explore areas insufficiently treated such as palliative care and drug addiction. In the last four years a special action programme has been implemented with the support of the government, designed to provide health care for poor people (ACME 2001, FNMF 2001).
Case study 6: Folksam-Sweden
Folksam was established to underwrite general insurance in 1908 by the co-operative movement, trade union movement and the social democratic party. The objective of the company was to provide fire insurance on contents, with particular focus on the insurance needs of the average citizen. The then-existing insurance companies had little interest in the insurance needs of people with small assets. As the company was not able to raise the required capital it was allowed to start underwriting business on the condition that it obtained a certain number of policies in its first year of operations. In 1914 a life insurance company was established to offer cheap life insurance to people of limited means. This made an important contribution to the welfare of the poor, as demonstrated during the time of the Spanish flu in the 1920s, which claimed many lives amongst the poor. In 1925 Folksam introduced the first collective insurance scheme in 1925, providing personal accident cover for trade union members. Compulsory affiliation to the scheme enabled a better spread of risks and lower costs, which made the protection more affordable for those with low incomes. Over the years Folksam has spoken out for social insurance solutions where feasible, such as the creation of a national state-run old-age pension system. Folksam has more than 4 million insured under life and non-life group insurance schemes. Each scheme has an insurance committee where policyholders can put forward ideas, review current policy, assess financial results and discuss product development and claims reviews.
Folksam believes strongly in using its data and insights to prevent or minimise accidents and other insurance events. Its research into traffic safety has gained world-wide recognition, saving countless lives and reducing the suffering of millions. It regularly publishes reports on the interior safety of cars, child restraint systems, and crash pulse recorders in certain cars. The company also exerts considerable influence on environmental protection and costs, particularly in the use of building materials and products.
Recently, Folksam started a pension company with the Swedish Trade Union where all future surpluses of the scheme would in their entirety be for the benefit of the pension plan participants. Additionally, participants are given full insight and influence by having representatives sitting on the board of the company and investment committee. In its constant drive to give value for money, Folksam has reduced the costs of pension savings on the Swedish market by introducing funds that charged only 0.5% as opposed to the common charge on the Swedish fund market of 1.5% per annum. (ACME 2001, Grip 2001, ICMIF 2000, Folksam 1999).
Case study 7: National Farmers Union (NFU) - United Kingdom
NFU Mutual was established by a small group of farmers in 1910 to provide its members easy access to sound affordable insurance protection. The company widened its focus to the British countryside and currently insures two out of three farmers in the UK, writing both life and non-life products through 600 agents and 1,850 staff. Local boards and county insurance committees provide a network of customer councils which look after the interests of policyholders and provide regular feedback to the main board directors who themselves are drawn from local boards. This gives access to top management and board for any member that has a grievance or idea. NFU Mutual uses a network of experienced local farmers who operate as local assessors, particularly when dealing with specialist claims such as livestock and destroyed crop. Farmers have welcomed the involvement of fellow farmers and this one of the reasons why the company has one of the lowest operating costs in the UK market (ACME 2001, ICMIF 2000).
Appendix Six
Human development and insurance penetration in Muslim countries
HDI rank 1998 | Country | Muslim population (%) 2000 | HDI value 1998 | GDP per capita (PPP US$) 1998 | Insurance density: Premiums per capita 1998 (USD) | Insurance penetration: premiums as a share of GDP 1998 (%) | World population 1998 (%) | World insurance market 1998 (%) |
32 | Brunei | 67 | 0.848 | 16,765 | - | - | 0.3 | - |
36 | Kuwait | 100 | 0.836 | 25,314 | 97.8 | 0.79 | 1.8 | 0.01 |
41 | Bahrain | 100 | 0.820 | 13,111 | 191.8 | 1.95 | 0.6 | 0.01 |
42 | Qatar | 95 | 0.819 | 20,987 | 271.9 | 1.66 | 0.6 | 0.01 |
45 | UAE | 96 | 0.810 | 17,719 | 253.4 | 1.43 | 2.4 | 0.03 |
61 | Malaysia | 59 | 0.772 | 8,137 | 133.4 | 4.02 | 21.4 | 0.13 |
72 | Libya | 97 | 0.760 | 6,697 | 35.9 | 0.23 | 5.3 | 0.01 |
75 | Saudi Arabia | 100 | 0.747 | 10,158 | 39.1 | 0.52 | 20.2 | 0.04 |
82 | Lebanon | 70 | 0.735 | 4,326 | 140.4 | 2.69 | 3.2 | 0.02 |
85 | Turkey | 99.8 | 0.732 | 6,422 | 33.1 | 1.06 | 64.5 | 0.10 |
86 | Oman | 99 | 0.730 | 9,960 | 58.5 | 0.87 | 2.4 | 0.01 |
89 | Maldives | 100 | 0.725 | 4,083 | - | - | 0.3 | - |
90 | Azerbaijan | 93.4 | 0.722 | 2,175 | - | - | 7.7 | - |
92 | Jordan | 94 | 0.721 | 3,347 | 29.8 | 1.90 | 6.3 | 0.01 |
94 | Albania | 70 | 0.713 | 2,804 | - | - | 3.1 | - |
97 | Iran | 99 | 0.709 | 5,121 | 18.6 | 0.67 | 65.8 | 0.05 |
98 | Kyrgyzstarn | 75 | 0.706 | 2,317 | - | - | 4.6 | - |
100 | Turkmenistan | 89 | 0.704 | 2,550 | - | - | 4.3 | - |
101 | Tunisia | 98 | 0.703 | 5,404 | 35.4 | 1.65 | 9.3 | 0.02 |
106 | Uzbekistan | 88 | 0.686 | 2,053 | - | - | 23.6 | - |
107 | Algeria | 99 | 0.683 | 4,792 | 9.1 | 0.54 | 30.1 | 0.01 |
109 | Indonesia | 88 | 0.670 | 2,651 | 5.8 | 1.27 | 206.3 | 0.06 |
110 | Tajikistan | 85 | 0.663 | 1,041 | - | - | 6.0 | - |
111 | Syria | 91 | 0.660 | 2,892 | 23.0 | 0.52 | 15.3 | 0.02 |
119 | Egypt | 94 | 0.623 | 3,041 | 8.5 | 0.65 | 66.0 | 0.02 |
124 | Morocco | 99 | 0.589 | 3,305 | 33.8 | 2.60 | 27.4 | 0.04 |
126 | Iraq | 97 | 0.583 | 3,197 | - | - | 21.8 | - |
135 | Pakistan | 97 | 0.522 | 1,715 | 2.9 | 0.66 | 148.2 | 0.02 |
137 | Comoros | 98 | 0.510 | 1,398 | - | - | 0.7 | - |
143 | Sudan | 73 | 0.477 | 1,394 | - | - | 28.3 | - |
146 | Bangladesh | 88.3 | 0.461 | 1,361 | - | - | 124.8 | - |
147 | Mauritania | 100 | 0.451 | 1,563 | - | - | 2.5 | - |
148 | Yemen | 99.9 | 0.448 | 719 | - | - | 16.9 | - |
149 | Djibouti | 94 | 0.447 | 1,266 | - | - | 0.6 | - |
151 | Nigeria | 50 | 0.439 | 795 | 2.7 | 0.86 | 106.4 | 0.02 |
154 | Côte d’Ivoire | 60 | 0.420 | 1,598 | 12.0 | 1.53 | 14.3 | 0.01 |
155 | Senegal | 94 | 0.416 | 1,307 | - | - | 9.0 | - |
156 | Tanzania | 50 | 0.415 | 480 | - | - | 32.1 | - |
159 | Eritrea | 50 | 0.408 | 833 | - | - | 3.6 | - |
161 | Gambia, The | 90 | 0.396 | 1,453 | - | - | 1.2 | - |
162 | Guinea | 85 | 0.394 | 1,782 | - | - | 7.3 | - |
165 | Mali | 90 | 0.380 | 681 | - | - | 10.7 | - |
167 | Chad | 50 | 0.367 | 856 | - | - | 7.3 | - |
171 | Ethiopia | 50 | 0.309 | 574 | - | - | 59.6 | - |
172 | Burkina Faso | 50 | 0.303 | 870 | - | - | 11.3 | - |
173 | Niger | 97 | 0.293 | 739 | - | - | 10.1 | - |
174 | Sierra Leone | 60 | 0.252 | 458 | - | - | 4.6 | - |
HDI (Human development index) – composite index based on life expectancy, educational attainment and standard of living. A HDI below 0.500 reflects low human development and well being.
Source: UNDP (2000), Felahi (2001), Sigma (1999), Sigma (2000).
Appendix Seven
The partner-agent model
Case study 8 – CULROC, Taiwan
In 1982, the Credit Union League was established and registered as a legal non-profit organization at the Ministry of the Interior. The League organizes, supervises, administers and monitors the activities of all credit unions in Taiwan serving 180,000 members. After a number of years of lobbying CULROC achieved concessions from the Taiwanese government that whilst not a licensed insurer it could provide its members with products from foreign insurers, who were licensed in their own countries. As from 1 January 2001, subsequent to an ICMIF workshop on formalising credit union insurance programs, a partnership between CULROC and NTUC Income from Singapore was agreed to insure the credit union members under the following schemes:
Loan protection insurance (LP). This term life scheme is mainly designed to "let the debt die with the debtor". In case of death or total disability of a member, the balance of his qualified outstanding loan will be covered by the policy, subject to policy limits which varies from CU to CU. Premium is paid by the individual Credit Union (CU). It is collected monthly by the league from the CUs and settled together with the claims in a monthly account to NTUC Income.
Life savings (LS). This term life insurance is designed to optimize the value of share deposits for members. The policy will pay an amount equivalent to the value of the deceased member's share. This is subject to a maximum policy limit which varies with the age of the member and duration of membership and from CU to CU. Premiums and claims are administered by the League and NTUC Income in the same way as under the LP programme.
Peace savings (PS). The concept of this policy is savings and term life cover. Consequently, it has a maturity value and gives death and disability coverage. The maturity period is five years. Unlike LP/LS, which automatically covers all members and is paid by the CU, this policy is subject to application and individual payment by the member.
Bond. This is a cover for the CUs, giving protection for fraud and dishonest acts of the management committee of the societies, damages arising from criminal acts and cash in transit. Coverage is dependent on size, assets and daily cash transactions of the CU.
This partnership has provided benefits to all parties, CULROC members have access to more products and additional coverage. CULROC receives a risk-free commission for administering and marketing the business, it has access to the technical expertise, financial and reinsurance capacity of NTUC INCOME, one of Singapore’s leading insurance companies and is an associate member of ICMIF. NTUC INCOME gained entry into the Taiwanese market without set up costs and licensing requirements. NTUC Income and CULROC are discussing several new products, particularly endowment insurance programmes to provide for the ongoing needs of credit union members.
Source: Aloysius Teo, General Manager, NTUC INCOME, Singapore
Appendix Eight
Formalising operations
Case study 9: Unique - Ghana
ICMIF and its member Zenrosai of Japan assisted the Labour Enterprise Trust Company Ltd to undertake a feasibility study and provide insurance experts to support the necessary groundwork to set up a co-operative insurance company. The trade unions and co-operative union collected regular premiums of $1 from each of its members and by 1999 raised sufficient capital (1 million USD) to make an application for an insurance license. During 2000, annual premium income of Unique Insurance company was about 350 thousand US dollars. In January 2001, the Co-operative Credit Unions Association (CUA) of Ghana approached ICMIF for assistance to provide formally acceptable insurance services to credit union members. CUA had introduced an informal risk management program in 1986, in which some 120 of the 160 credit unions in the country received credit life insurance and savings life insurance. An agreement was reached to pursue a partnership between CUA and Unique sponsored by ICMIF and the Canadian Co-operative Association (CCA).
The consultants mission was to
- identify the administration, information systems, accounting, actuarial and marketing requisites of the joint program;
- design and implement the needed management information system and database; and
- ensure the program’s adherence to current and anticipated legal and government requirements.
The first step is to transfer the CUA credit life business to Unique, this needed a product to be developed from scratch as Unique did not have an existing credit life product, requiring the following steps:
* finalising the product itself, i.e., all the specifications;
* designing the procedures and forms, health declaration forms and certificates of insurance;
* arranging for reinsurance;
* developing the actuarial rates and reserve calculations;
* drafting the master contract; and
* modifying the administration/actuarial/reinsurance software.
The general arrangement of the partnership is for the individual credit unions to sell the product to their members, collecting data, and handling the applications and health declarations. The CUA markets the products to credit unions, codes the data and undertakes general administration in return for a profit share. Unique will bear the risk, provide actuarial and software support, obtain reinsurance and pays claims.
The credit life product will be piloted in four credit unions to generate live data. The second product, savings life insurance will be transferred in 2002. A broader objective of the CCA-ICMIF project is to use the risk management, insurance and reinsurance elements of this model agreement to assist credit union organizations and co-operative insurers in other countries to develop and maintain sound insurance services for their members.
Source: John Wipf, ICMIF Consultant
Appendix Nine
Reinsurance through ICMIF
Case study 10: Co-operators General Insurance Company - Barbados
The Barbados credit union league after administering a Mutual Benefit Plan to its members for a number of years, formalised its insurance operations in 1993. ICMIF has been assisting the League to set up insurance services since 1984, providing consultancy and capital-raising support. Once registered Co-operators General faced three major problems that were resolved by ICMIF reinsurance through its members. In the first year of operations, due to over estimation of premiums, the cost of catastrophe cover on the open market for fire, household and motor policies was higher than actual premiums written. ICMIF reinsurer provided a 90% quota share agreement[52], which reduced the exposure of the company to one-tenth. Second, the nature of unlimited liability under local motor policy regulation meant that the best unlimited excess of loss cover[53] available on the open market required a retention of 300,000 BBD on each claim, which the company could not afford. ICMIF reinsurer provided an excess of loss cover up to the 300,000 BBD with a retention requirement of only 40,000. Between 1994 and 1998 this protected the company from 884,000 BBD in claims (almost half million US dollars), enabled it to write more policies, gain more underwriting experience, pay claims quickly, maintain solvency and invest reserves. Thirdly in 1998, the company was experiencing an increasing number of small claims (below 40,000) due to the rapidly expanding motor business. Consequently, the excess of loss was converted to a 50% Quota share agreement up to 300,000 BBD and placed with ICMIF members. This protected the company from claims of five and half million BBD between 1998 and 2001 (over two and a half million USD) and maintained its capacity to grow.
Case study 11: Co-op Seguros Dominican Republic
Since its registration in 1989, apart from 30% being placed locally for the first few years, ICMIF has provided the reinsurance cover for all products (non-life and life) written by Co-op Seguros. During the 1990s the company experienced financial difficulties and coupled with foreign exchange restrictions fell behind in its payment of reinsurance premiums. Normally reinsurance cover would be withdrawn but on persuasion ICMIF members continued its agreement to cover Co-op Seguros. In the late 1990s as the company’s performance improved a suitable repayment plan was agreed and implemented. This proved timely as in 1998 Hurricane George resulted in seven claims of 322 thousand US dollars, ICMIF reinsurers agreed to pay the claims without deduction of outstanding premiums. As well as paying its policyholders quickly and fully, this enabled the company to remain solvent and show a pre-tax surplus of 41 thousand instead of a loss of 140 thousand US dollars in 1998.
Source: ICMIF Reinsurance Services
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