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Product Innovation: Microinsurance

In 2009, the First Microinsurance Agency Pakistan began offering health clinics in neighbourhoods of Karachi where clients could receive preventive and curative medical treatment.Compared to microcredit, the microinsurance industry is still in its infancy. As low-income families strive to improve their lives, they are especially vulnerable to the unforeseeable, adverse events which, despite their best efforts, can drive families back into poverty. The death of the breadwinner, unmanageably heavy hospital expenses, or loss of assets such as livestock, crops or shelter, can be financially catastrophic for a poor family. Microinsurance, when appropriately designed alongside client education, can offer poor families valuable protection against these adverse circumstances.

The AKAM Microinsurance Initiative, which commenced in 2006 with generous financial support from the Bill & Melinda Gates Foundation represents one of the industry’s first concerted, experimental efforts to develop the market for microinsurance beyond the already well-established credit life product. The programme has focused on two countries, first Pakistan and subsequently Tanzania. In both countries, AKDN has well-established insurance companies.

AKAM’s flagship microinsurance product is hospitalisation insurance. AKAM works from the hypothesis that the most appropriate solution for health financing involves a combination of savings accounts and microinsurance. The objective is to help families prepare for both expected and unexpected health expenditures by encouraging savings–especially for future routine family health expenditures–and providing insurance for the less frequent and less manageable expenses. The insurance safety nets kick in when households experience a catastrophic event requiring immediate hospital admission resulting from accidents, complicated births and serious illnesses that could require surgery. These events, while of high cost for the family, are sufficiently infrequent as to be amenable to coverage under risk-pooling mechanisms that charge as little as US$ 5 per person/per year in premiums.

A Doctor tests blood pressure at a FMIA clinic in Karachi, Pakistan as part of the microinsurance programme. Microinsurance services offered by FMIA include hospitalisation insurance, savings completion and credit life. The health clinics programme is meant to help fulfil FMIA's goal of providing affordable insurance products carefully tailored to the needs of poor families.AKAM offers credit life insurance, which is an insurance that matches the client’s loan balance in case of death or serious disability. This helps to protect the family of the borrower (often the breadwinner) from debt. Most credit life products also provide the family with some funeral benefits. If the credit life client is willing to pay a little more into the insurance plan, the family of the borrower is assured of funds to transition into a new livelihood, whether it is an entrepreneurial endeavour or just the flexibility to still feed the household while looking for a job.

The portfolio of the First Microinsurance Agency Pakistan (FMiA-P) has grown to 390,000 credit lives insured and 60,000 health (hospitalisation) lives insured. The products are currently being offered to microfinance borrowers in Gilgit-Baltistan through the First Microfinance Bank Pakistan in Karachi and through Buksh in Lahore. In three years, FMiA-P has provided access to quality health care to many individuals including over 8,000 hospitalisations and more than 2,300 deliveries, of which 700 were high-risk.

Many families still do not understand the value of health insurance unless a member of the family falls ill during the year of the health coverage. For that reason, enhancements are required to demonstrate the benefits of health insurance more widely and tangibly through both education and marketing so that enrollees have a satisfactory experience with the insurance service, even if they are not hospitalised.

Considering the demand for services beyond hospitalisation, FMiA-P has established out-patient consultation through 24-hour telephone health assistance, as well as discounted medicine purchases and routine neighbourhood health clinics sponsored and run by FMiA-P’s doctors. These additional services allow FMiA-P to provide affordable health insurance products which are carefully tailored to the needs of poor families. This will lead to the prevention of illness and the ability to tackle disease in its early stages. The educational component of the clinics aims to increase the health status of the participating households through health awareness and education, improved health and hygiene practices and a more effective use of the formal health care system.

In 2010, AKAM will be piloting a programme offering a range of services to both mother and child called “Maternal Health Passport (MHP)”. The MHP entitles the new mother and her newborn child to access a range of medical services aimed at covering all maternal health needs through the duration of her pregnancy, as well as basic pre- and post-natal care. These services include antenatal visits (including lab tests and ultrasounds), delivery in a hospital, a post-natal visit for mother and infant, vaccinations, emergency services, and educational material regarding maternal health.

Providing mothers with an affordable and worry-free health care solution is a pressing need in microinsurance. The costs associated with a normal delivery can surpass a third of the monthly household incomes of those at the bottom of the income pyramid, so childbirth can represent both a moment of joy and a significant financial worry for poorer families.

The First Microinsurance Agency Tanzania (FMiA-T), the newest AKAM agency, started distributing microinsurance products at the end of 2009. The distribution of micro-health insurance products to low-income families is being made through channels such as cooperatives and microfinance institutions. By offering microinsurance options through microfinance institutions and savings and credit cooperatives in Tanzania, FMiA-T’s products will be targeting over 300,000 families over the next five years. Many low-income families will be able to afford the low premiums offered.

FMiA-T activities are concentrated in rural areas because FMiA-T’s partners, as well as other AKDN agencies, are more active in rural Tanzania. With increased support for health insurance products, FMiA-T and the Aga Khan Hospital facilities will be scheduling health education events to promote good health and health insurance for low-income families.

AKAM’s microinsurance initiative in Pakistan and Tanzania is at the forefront of innovation in terms of designing new products that are attuned to the needs of poorer populations and in using new partners and technologies to distribute these products. AKAM will be building on this experience and will be exploring the needs and product options in the other AKAM countries in the years to come.