Access to a safe place to save and the ability to borrow are understandably the first two pillars of financial inclusion. Savings accounts allow women in particular to accumulate money to improve their family’s health, nutrition, and education or to make investments in their businesses or farms. Loans, on the other hand, can provide the growth capital that lifts a business to the next level and creates more jobs. But all of that hope and progress can be wiped out if people do not also have the tools to manage the inevitable risks that all of us face. That’s where insurance comes in. At some level we will have failed those billions of underbanked people if we don’t ensure that they have some way to protect their gains in the face of a health emergency or a natural disaster. Yet fewer than 20 percent of low-income are people currently insured. The vast majority must still rely on largely inadequate informal risk management strategies that are estimated to be ten times less effective than formal protection mechanisms.
The story of Nandini, a client of one of India’s leading microfinance institutions, illustrates both the limits of credit-only microfinance and the tragic shortcomings of informal risk management. Nandini owned a business she’d built literally out of the trash. She collected used bottle caps and then, with a $100 loan from a microfinance institution, bought a machine that would flatten the caps, which she then sold back to soft drink distributors in her city. After several quite prosperous years, Nandini’s husband became ill and could no longer work. The money she earned from the bottle cap business wasn’t enough to cover his medical costs, and the family was forced to take their eldest daughter out of school so she could work to supplement the family’s income. Ultimately, Nandini wasn’t even able to repay the balance on her microfinance loan, and the family slipped deeper into poverty. In the midst of all the other calamities she faced, the cash she had painstakingly saved under her mattress was stolen. Without a safe place to save her money and insurance to protect her family from a health emergency—in other words, a full financial safety net—she could not protect her hard-won success.
Low-income people face the same risks—illness, loss of property, and susceptibility to both natural and man-made disasters—as the rest of the population. Yet the symptoms of poverty leave low-income families far more vulnerable to those risks and less able to cope with and recover from a crisis when it does occur. Low-income families live under constant threat of the sudden death of a breadwinner or the destruction of a crop by drought or flood; this uncertainty typically leaves them unwilling or unable to take even small risks or to benefit from income-generating opportunities that might improve their situations. Jayshree Vyas, managing director of India’s SEWA Bank, likens poverty to the children’s game of Chutes and Ladders: the sudden death or illness of a family member is the risk most likely to unravel a low-income family’s progress up the ladder toward prosperity, sending it back down the chute into deeper poverty.
Among the many risks they face, low-income households around the world cite health emergencies as the biggest risks to their financial security. In the face of such an emergency, low-income households resort to different, often detrimental coping strategies. They tend to deplete their savings, sell their assets, decapitalize their businesses (and if the husband and wife each have a business, the woman’s is typically liquidated first), borrow from friends or family, or reach out to expensive informal money lenders. As we saw in Nandini’s story, when faced with a health emergency, children—more often girls than boys—are taken out of school to earn money for the family in times of emergency, or the family reduces food consumption (again, women and girls make the first sacrifices.) Although women typically earn less income than men and have less ownership and control of property, they tend to be the primary caretakers for their families. As such, they utilize their earnings to improve the care and standard of living of their households—which may be good for their family members, but often comes at the expense of further growth and investment in their businesses. In fact, selling assets in response to health emergencies is the most frequently cited reason low-income women’s informal businesses fail.
All of this points to women as an important target market for insurers, but we cannot forget how important the element of trust is for women to engage with a financial service provider. And insurance is notoriously the least trusted financial product: the South Africa–based Centre for Financial Inclusion surveyed customer attitudes about various financial products throughout the developing world and insurance reliably came in dead last. Clearing the hurdle of trust will be essential to tapping this largely unserved market. Additionally, insurance is a complex financial product for people at all income levels to understand; the old adage that “insurance isn’t bought, but only sold” has become cliché for precisely this reason. So designing simple products that are easy to understand, enroll in, and make claims against is indispensable to reaching low-income customers. In addition, since premiums paid on insurance products destined for this customer base must be as low as possible, insurers will need to keep costs as low as possible as well.
This juggling act between offering appropriate risk coverage for women and overcoming their lack of awareness, even distrust, of the product is often seen when examining the real-life experiences of women. Hiyam is a client of Microfund for Women, the leading microfinance institution in Jordan, but, more important, she represents a success story for their innovative Caregiver microinsurance product. She had become something of a poster child for Caregiver (known as Afitna in Arabic) based on her own experience and referrals she made to other women. Hiyam was well known for running a popular local business selling cold cuts and sausages to her neighbors in Amman, Jordan’s capital city. She moved to Amman from Beirut at age seventeen for a marriage arranged by her parents, and as a young woman, she found it difficult moving to a new country alone without a family around her for support. She and her husband, Hasan, moved to different parts of the city a few times before settling in North Marka, where she and Hasan live with their youngest son, Ahmed. Their three older sons, Muhammad, Tareq, and Mustafa, are all married and also live nearby in Marka.
Early in her marriage, Hiyam wanted to contribute to the household’s income, but also put aside some money she could call her own. Since Hasan worked as a butcher, the cold cuts and sausages business seemed like a natural way to bring in some extra money. Soon she could not keep up with the demand for her sausages, and when a neighbor introduced her to Microfund, she borrowed 300 Jordanian dinars (approximately $400) to purchase more raw materials. Her business continued to grow, and she repaid the first loan quickly in order to borrow a larger amount to purchase machinery to increase her productivity. Sure enough, using the grinders and casing machines she was able to produce six kilos of meat in just three days, when it would have taken her fifteen days before.
Then, just as the prospects for Hiyam’s family and her business seemed brightest, Hasan had a heart attack. He was rushed to the hospital for emergency open-heart surgery, after which he went through a long, slow recovery. Hiyam recalled that, while Hasan recuperated, the family’s savings were wiped out. Not only did the family struggle financially from the loss of his income but her business also suffered as she traveled back and forth to the hospital, caring for Hasan and bringing him meals, which weren’t provided by the state-run hospital. (In many developing countries, only direct medical care is provided by the hospital, particularly if they are public facilities. Everything else—food, much of the nursing care, pharmaceuticals, in some countries even the bed linens—must be brought in by the family.) All of these expenses wreaked havoc on Hiyam’s family’s finances, and the situation deteriorated further when the doctors told Hasan he could no longer work after he was discharged from the hospital. Overnight, Hiyam’s contribution to the household became the family’s sole source of income.
Once Hasan was home from the hospital, Hiyam began rebuilding her business and was gratified (and relieved) to know that demand for her sausages was still strong. With another loan from Microfund for additional machinery and an expanded kitchen, she looked forward to selling her products beyond her immediate neighborhood. It was clearly a great source of pride that she had kept her business afloat; no matter how tenuous their finances had become, Hiyam had been able to keep her children in school throughout this household crisis. Her role in the home had changed, and the bond with her husband had strengthened, but her responsibilities as both caregiver for Hasan and sole financial provider for the family left her little time to expand her business further. An unexpected health emergency can so easily dim aspirations, as Hiyam shelved her expansion plans, limiting her business to pick-up orders at the apartment.
This is indeed a story of resilience, but setbacks can strike again, and two years later, Hasan suffered a second heart attack. This time, however, Hiyam had an insurance policy from Microfund that was bundled with her loan and that allowed her to cover the cost of Hasan’s hospitalization without having to dip into the savings she had painstakingly rebuilt following his earlier illness.
The type of insurance policy that allowed Hiyam and her family to weather her husband’s second heart attack with their finances intact is known in the insurance industry as “hospital cash.” It’s often one of the first types of insurance offered to new client segments because it’s fairly easy to understand and it offers the insurance company an opportunity to build trust with clients since claims can be easily verified and settled quickly. There is a truism in the insurance industry that the prompt payment of claims is the easiest way to win clients’ trust, so insurers often choose personal accident insurance or hospital cash as an early product offering because they offer the opportunity for more frequent payouts. Additionally, products with more frequent payouts provide more opportunities for contact between insurer and client.
While some countries make social security programs available to the low-income population, these plans are often woefully inadequate. They typically do not cover out-of-pocket expenses on medicines or medical equipment. Travel costs are frequently cited as a reason that low-income people do not seek medical attention, even with government or military coverage of the actual medical care itself. Even in Rwanda, with its exemplary Universal Health Coverage plan, there is strong interest in a Caregiver-like hospital cash policy because transportation costs often preclude people traveling to receive the care they need. A raft of other, nonmedical costs also accompanies a family member’s hospitalization, including loss of income and transportation; in some countries, bribes are all too often required to receive adequate hospital care. These hidden expenses can represent almost 70 percent of the total cost of a hospitalization, exposing low-income families to an even greater risk of falling deeper into poverty.
The organization known today as Microfund for Women was established in 1994 as a pilot program by Save the Children to provide microcredit to women in two Palestinian refugee camps in Amman. It became an independent Jordanian NGO in 1996 and today is the largest microfinance institution in Jordan, with a 34 percent market share and sixty branches throughout the country. The organization provides both financial services and nonfinancial training services to 146,000 clients, 96 percent of them women. It’s particularly impressive that in a country with only 12 percent female labor force participation, 73 percent of Microfund’s staff and management are women.
The Caregiver policy was considered quite revolutionary at the time Microfund introduced it, requiring extensive discussions with Jordan’s insurance regulator, but it has many elements that have come to be standard for successful microinsurance initiatives. In designing Caregiver, Microfund was particularly attentive to three interrelated priorities: the product had to meet women’s needs, operating costs for both the insurer and Microfund as distributor should be minimized, and premiums had to be kept low so that the product would be affordable to the broadest number of clients. Microfund bundled an unsecured microfinance loan together with an insurance policy that provided a cash payment (roughly equivalent to a day’s earnings for most of its clients, including Hiyam) for each day that any member of the borrower’s family had an illness requiring a hospital stay. The policy was mandatory for all Microfund borrowers in order to spread risk among the largest number of people, which lowered premiums and avoided adverse selection. Clients make a single monthly payment that includes their loan installment and a premium payment roughly equivalent to $1.50. Microfund conducted extensive training on Caregiver for both field staff and customers, including a radio campaign and a very popular comic book series that illustrated various scenarios for when the product could be used and how to file a claim.
An important contributor to Caregiver’s success was Microfund’s partnership with Jordan Insurance Company, a composite insurance company that offers both life and nonlife insurance products. Building trust with low-income clients who are new to insurance is an absolutely essential prerequisite, so mainstream insurance companies frequently partner with organizations that have long-standing trust relationships with clients, as Microfund does, to serve as distribution partners.
Senior executives at Jordan Insurance first met the Microfund team in 2006. Mazen Nimri, then the company’s deputy general manager, remarked at the time that he had never heard of the idea of providing insurance to very poor people, and his initial response to Microfund’s proposal was that it was crazy. He had concerns that the company could not price a product for low-income women that would be both affordable and still cover the administrative costs of maintaining the policies. He also thought that insurance products would never be accepted by Microfund’s client base of low-income women because of their lack of insurance education, and possibly for religious reasons. Nevertheless, he was very impressed by the Microfund team’s passion to serve their clients and, motivated largely by a sense of corporate social responsibility, agreed to move forward with a fairly simple product, a credit life policy that would repay a borrower’s debt in the event of her death. This is the most common microinsurance product, offered by most microfinance institutions around the world, although it is usually quite unpopular with clients. Even though the client is paying the premium, it’s the lender, not the client or her family, who is the policy’s beneficiary. Mazen and his colleagues heard the clients’ dissatisfaction and worked with Microfund to reshape the product into a term life insurance policy that still ensured that Microfund’s loan would be repaid if the borrower passed away, but it also paid an additional amount to the borrower’s survivors. They also added a “living benefit” that paid a lump sum to the borrower in the event her spouse died while her loan was still outstanding. Jordan Insurance has written more than $1.6 billion in insurance for Microfund clients since launching the revised policy (called “Himaya,” or “safekeeping” in Arabic) and today over 300,000 families—close to two million people—are covered, with both organizations sharing the premium revenue.
The willingness of Jordan Insurance to collaborate and make changes to the Himaya product was a major factor in Microfund’s decision to approach them about Caregiver. Over the years Microfund had consistently heard concerns from their clients about the adverse financial consequences of a family health emergency or the impact of woman’s own loss of income during childbirth. Clients were saving as much as 10–15 percent of monthly income as a reserve against these health-related emergencies. These women’s capacity to maintain such significant savings balances indicated that they could handle a financial tool to help them manage these risks. Microfund briefly considered extending a loan to existing customers in good standing to cover these types of emergencies, but soon realized that insurance would be a more efficient way to manage risk. The only real point of disagreement between Microfund and Jordan Insurance was the former’s insistence that there be no exclusions—for preexisting conditions or pregnancy—to the policy. Jordan Insurance thought allowing pregnancy-related coverage would be a costly mistake in light of the demographics of Microfund’s client base. Microfund, on the other hand, saw it as a critical indicator to clients that the organization had heard their concerns about managing income they lost from their businesses immediately before and after giving birth. In the end, Jordan Insurance came to see the lack of exclusions as a useful way to keep premiums low, since collecting data to monitor exclusions can be quite costly.
Mazen Nimri is quick to point to the level of trust and transparency that built up between Microfund and Jordan Insurance over the years as the most critical success factor in bringing the Caregiver to market. They learned a lot about each other’s business and their respective motivations and incentives while they designed and then revamped the Himaya policy together. Mazen mentioned the Caregiver claims process as an example of the unusual degree of trust that existed between the two organizations. Even though Jordan Insurance was underwriting the Caregiver risk, the company delegated the payment of claims to Microfund first for claims of up to three nights’ stay (now up to ten nights’ stay). This not only keeps administrative costs down, but, through its specialized claims unit, Microfund has established strong relationships with hospitals throughout Jordan and has successfully managed to keep fraudulent claims to less than 2 percent.
For Jordan Insurance, the collaboration with Microfund introduced the company to a new market for which it established a considerable “first mover” advantage and has brought them steadily increasing premium income since the product launched. For Microfund, Caregiver has increased the organization’s already high levels of customer loyalty. In addition, in a market where the regulator strictly limits the way that microfinance institutions can generate revenue, Microfund’s portion of the Caregiver premium income represents a valuable source of noninterest earnings.
After successfully collaborating with Microfund for over ten years, Mazen Nimri speculated about why Jordan Insurance Company’s entry into the microinsurance segment was such a success, saying, “Maybe we had the courage to take risks as a smaller insurer that larger companies won’t take.” The size of the potential microinsurance market merits another look from those larger insurers, though: the 3.8 billion uninsured low-income customers could generate premium income estimated at $30–$50 billion. As Jordan Insurance and a few other insurers (e.g., AIG Uganda) have discovered, it’s not all that difficult to reach scale, particularly by marketing to women, who have a strong preference for enrolling their husbands and children in addition to themselves, particularly for health coverage.
As in all areas of financial inclusion, digital financial services are lowering the cost of delivering microinsurance products, in addition to disrupting various steps in the insurance process. The situation on the ground is changing rapidly, but some areas of fruitful technological innovation have included instant customer enrollment via cell phone—a process made even easier as countries introduce a national form of identification, such as the Aadhaar in India, or premium collection by mobile payment. Weather satellites and drone photography have revolutionized claims verification for weather-related agricultural insurance. And the enormous volume of data available through mobile phones allows the analysis of low-income people’s behavioral and social data to establish risk profiles far beyond anything previously available through actuarial data. BIMA, one of the pioneers of digital insurance, now offers simple life, personal accident, or hospital insurance coverage on a “pay as you go” basis. PAYG products can be purchased in monthly blocks, and customers can “re-up” without penalty. Based on cell-phone top-up plans, the PAYG insurance product serves to build trust and familiarity with insurance products.
PULA, an insurtech company in Kenya, offers a unique approach to agricultural insurance. It has specifically targeted women, who make up more than 40 percent of smallholder farmers in Africa. The company works with agricultural input providers to bundle an insurance voucher with each bag of seed or fertilizer purchased by a smallholder farmer. The farmer then registers for insurance with a local agricultural dealer, who is typically a trusted source of information and advice. The company monitors rainfall as the growing season starts. If a farmer has a failed planting due to drought, the farmer can claim another bag of seed to replant. At the end of the season, PULA measures yields, and if a farmer’s yield is below the average for the area, she or he receives a cash payout. To date, PULA has insured over one million African farmers and is now exploring expansion to other emerging markets.
Beyond their role in microinsurance, women represent an enormous growth opportunity for insurers, particularly women in the ten largest emerging economies. In a groundbreaking report titled She for Shield, AXA, one of the world’s largest insurance companies, estimates that women in these developing markets will represent half of the global women’s insurance market by 2030. There are two principal drivers of this growth. As women throughout the emerging markets gain greater access to tertiary education, enter the labor force, and earn a higher income, they have greater ability to spend on insurance, and they also have a greater willingness than men to pay for insurance to protect themselves and their families from risks they might face. Women all along the socioeconomic spectrum tend to purchase coverage for their entire family. This not only provides insurers with a greater opportunity to cross-sell, it also decreases costs by limiting distribution to a single decision-maker.
The business opportunity for insurers to cultivate this underserved market is clear. Since women are chronically underinsured, just reaching gender parity on a single product, life insurance, would yield $500 billion in new written premiums. But there is also a business case for banks to integrate insurance into their offerings to women clients. Including insurance coverage in a bank’s women’s proposition—particularly health- or education-related coverage—can increase per customer profitability and savings account balances and lower the rate of nonperforming loans. Women not only seek ways to mitigate business risks, they are typically household risk managers as well. Insurance products that provide women with a claim payment that allows them to make loan repayments or otherwise smooth consumption not only see improvements in the credit quality of their loan portfolios but may also see improved rates of customer retention.
The Caregiver collaboration between Jordan Insurance and Microfund for Women has been a commercial success. Similarly, having ready access to cash at the time of a health emergency to cover medical costs or make up for lost income can keep a family from tumbling down the chute into poverty. But can we say that women are empowered as a result of their access to this insurance product, and can that empowerment be measured through the changes identified under the Chen empowerment framework? Did the Microfund clients undergo material changes to their income thanks to Caregiver? Did they change cognitively as a result of learning the mechanics of the insurance product, one of Jordan Insurance’s initial misgivings? Did the product affect their relationships within the household or community or their own perceptions of themselves?
Conversations with Microfund clients and an analysis of five years’ worth of customer data indicate that women experienced both tangible material benefits and important changes in confidence and self-perception. Nearly all the women used the cash payout from the insurance policy to repay debt or avoid going into debt as a result of their own or a family member’s hospitalization. Families with the Caregiver policy were able to maintain overall consumption levels and were better able to cover health-related expenses such as prescription medicines or medical dietary requirements. Those women who had income-generating businesses either by themselves or with their husbands said that by protecting the money they generated for their families, the insurance policy affected the women’s decision-making role within the household. One woman interviewed summed up a perspective echoed by others: “When a woman has money, she’s strong in everything. If you have an opinion and your husband has an opinion, you can talk to him. Money is strength.” Although several women noted that their husbands treated them better now that they played an active economic role in the household, many also mentioned that this change had not come without complications. As one woman ruefully told us, “He knows I have money, so he will save his own money for himself and will wait for me to get my own money to spend on the house.”
Several of the women linked their ability to manage the risk of an unexpected health emergency with a greater capacity to plan for the future. Perhaps no one better exemplified this determination and sense of vision than a woman who had recently used a Caregiver claim to cover household expenses while she recuperated from a cesarean section delivery. With her infant daughter in her arms, she smiled and said to the interviewer, “I plan to keep working. I plan to improve my business. I will open a store.”