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 Definition

 Principles

 Characteristics

 Opportunities

 Challenges
2. What is Insurance?
 A financial service allowing individuals to pool their
exposure to risks of economic loss resulting from
the occurrence of uncontrollable events such as fire,
death, earthquakes, etc.
 Essentially, an individual pays a premium that buys
guarantee of compensation for economic loss due to
the occurrence of a predefined set of events.
 The premiums of the many are pooled and the
losses of the few are compensated from the pool.
3. Basic Principles of Insurance
There are 7 basic principles upon which the
business of insurance is built:
2. Loss must occur by chance, ie. it must be an
unexpected and random event.
3. The loss must be definite in terms of timing and
4. Existence of significant insurable interest.
5. The rate of loss must be predictable.
6. The loss must not be catastrophic to the
7. “Large” number of “similar” risks.
8. Premiums must be affordable.
4. What is Micro-insurance?
Loosely speaking, micro-insurance refers to insurance
systems that offer products designed for the poor.
Characteristics include:
 Simple product design, frequent and affordable
premium payments, uniform benefit packages.
 Independent and non-profit in nature
 Based on principles of solidarity, democratic
ownership and management
 Aim to provide access to protection against risky
events that affect the health and economic well-
being of the poor.
 Primary products include: life, memorial, health and
property insurance, savings vehicles
5. Hallmarks of a Successful
Micro-Insurance System
1. At least 10,000 members (if life insurance is offered).
2. Efficient and low-cost collection system.
3. Well designed products that meet members’ needs but with
features that mitigate moral hazard and adverse selection.
4. Compulsory participation of all insurable members.
5. Low cost of administration and claims payment.
6. Professional management and competent technical staff
adhering to business standards and insurance principles.
7. Computer systems able to track and service members, to
accumulate data for experience analysis, MIS, etc.
8. Professional investment management.
9. Sound reinsurance program.
10. Scientifically computed and fully funded actuarial reserves.
11. High benefits to premium payout ratio while maintaining sound
financial health.
6. Micro-insurance Potential
 MFI Council- 25+ rapidly growing MFIs with estimated
membership of 400,000 households
 Other MFIs in the country with estimated membership 1,600,000
households (NGOs and Co-operatives)
 CCA-ILO sponsored Health Reinsurance Business Plan showed
IRR of 20-24% is possible (model in next slide)
 Market research support from CCA helped CARD-MBA discover
that 46% of households are unserved by the insurance industry
in southern Luzon
Other South East Asian Countries
 Similar opportunities
7. Micro-insurance Model (The Big

actuarial services, product

Cedes risks beyond its capacity to the open market
systems development and
market research
commissions Reinsurance & reinsurance (secondary
& service Resource Center level pooling)
fees negotiate with health
service providers
promotions, branding,
MBAs cede risks beyond their capacity to jointly owned
quality control
Reinsurance / Resource Center

MFIs = Co-ops,
NGOs, Rural
MFI 1 MFI 2 MFI n MFI 1 MFI 2. . .MFI n Banks, etc.
... MBA = Mutual
MBA 1 MBA 2 MBA n MBA Association
(primary micro-
8. Possible Steps Towards the
“Big Picture”
Life Insurance Business
2. Create a Resource Center, document best practices of
successful MBAs, transfer existing systems and
technology (6-12 months)
3. RC assists with setting up 5-10 MBA’s offering life and
savings products (12-24 months)
Health Insurance Business
5. Expand into micro-health insurance, continue setting
up and servicing MBAs
6. Negotiate a Capital-Buildup Program with the
Insurance Commission. Raise capital from MBAs and
other investors, upgrade to a reinsurance company
9. Challenges
 Pioneering aspects: developing technology that works,
convincing enough MFI MBAs to create momentum, etc.
 Capital requirements for a reinsurer are high… need to
negotiate a capital buildup scheme with the Insurance
 Health micro-insurance: getting support from national
carrier PhilHealth who is currently not supportive of
micro-insurance providers
 Informal schemes: convincing the thousands of informal
schemes in the country to formalize and to