Reducing vulnerability: the supply of health microinsurance in East Africa

Microinsurance in various forms has been available in East Africa for many generations. More recently, new efforts and formal programmes have been introduced to improve people's ability to manage their risks. Some hospitals and clinics have developed prepayment schemes. Some non-governmental organizations (NGOs) that work with low-income clients have developed risk management products like emergency credit or microinsurance products. Even some commercial insurance companies have begun to identify opportunities in this market. The quality varies from programme to programme, but it is clear that people are identifying a need for risk mitigation and that many are taking advantage of these newly created opportunities. MicroSave, with The MicroInsurance Centre and Microfinance Opportunities, recognized a need to understand both the demand for and supply of microinsurance in the East Africa region. The goal was to understand what people are looking for in risk management services and match that with what is being offered, to identify market opportunities, and to understand implementation lessons of institutions currently involved in provision of services. This paper addresses the supply side of microinsurance. The authors identified seven institutions in the region as case studies to help understand supply side products and operations. These institutions were selected based on having an active health care financing product serving the low-income market (except one). The authors wanted these potential elements in the study: a variety of delivery mechanisms a variety of organizational structures a mix of urban and rural institutions several cases from each country one for-profit institution that serves the middle and upper market but that also has an interest in moving towards the low-income market (to learn lessons for professionals). These institutions ranged from the start-up Community Health Plan in Kenya with 100 clients to the Tanzanian Government's Community Health Fund with its reported 330 000 members. Most of these institutions have limited outreach, ranging from 500 to 2000 insured people. The for-profit commercial health management organization (HMO) we studied covers 65 000 lives. Each organization we studied provides services through either a single hospital or a network of health care facilities. None of them have particularly strong governance, and most have very little insurance business capacity. Some excellent computerized systems were observed, and their benefit to a health care programme was made clear. However, in neither of the institutions with good computerised systems was the data used to anywhere near its full potential. Manual systems were sufficient for very small community-based institutions where no real data analysis is expected or attempted. The 7 institutions selected include: 1 in Uganda: Microcare, CIDR, and the Kitovu Patient's Prepayment Scheme; 2 in Kenya: MediPlus and the Community Health Plan; and 3 in Tanzania: Poverty Africa and the Community Health Fund. The authors visited each institution and spent three to five days in discussions with management, staff, providers, and intermediary partners about the health microinsurance programmes. Qualitative participatory rapid appraisal (PRA) sessions were held with a mix of current, past, and non-clients of each of these programmes. These discussions provided the basis for individual case studies of each of these institutions (see www.microinsurancecentre.org). Those case studies are synthesized into this paper. All of these institutions worked with groups-employers with low-income employees, microfinance institutions (MFIs), village groups, or others-to facilitate the marketing of their product. Those working with employers found this far superior to working with MFIs because in most cases a single person makes the decision and there is no need to convince all members of a group. Financially, all of these institutions have weaknesses except the Tanzanian government programme where local groups collected premiums for the fund but the government paid for the medications and the care, thus allowing the fund to grow. All of them have had capital problems, and only the commercial HMO has insurance to cover its claims. The others had no reserves except the CIDR programme, but its reserves were quickly depleted. Pricing has been extremely difficult for all of these institutions. Most began with premiums that were far too low to even cover the costs of claims let alone operations costs and something for a reserve. Partly this derives from a desire to charge only what people can afford' without consideration of the likely costs to be incurred. If these programmes are to be successful, pricing will have to be outsourced to professional actuaries. Even with all these issues, some low-income people are getting access to better health care at an affordable price, and although there are certainly some client issues, generally they are happy with the microinsurance product they purchase. Still, non-renewals for groups have been significant and this creates difficulties regarding growth, although non-renewals for employer-based groups have been relatively low. There is tremendous opportunity in the low-income markets of these countries where formal insurers cover maybe the top five to ten percent of the population leaving the rest to fend for themselves. The institutions we studied are trying to service this market and are learning important lessons along the way, and most do try to apply the lessons as they move forward. These cases show us that realising these opportunities will take much effort, and the implementation of lessons learned as well as those yet to be learned. Some of the institutions are implementing health prevention programmes such as bednet sales (to reduce the incidence of malaria) while others are talking about other potential health prevention activities. Several of the institutions are in some way related to healthcare outreach entities, but none have contacted them to begin to coordinate the outreach with the microinsurer's clients. Some good examples of risk management policies and procedures were observed. Two institutions had employees stationed at covered health care facilities, and one had a networked computer system to both confirm identities and to input health care transactions for immediate analysis and invoice control. All institutions had at least some well-considered controls however, for marketing expediency (and sometimes because of poor control over staff), these have occasionally been ignored. In most cases where this has happened, the institution found itself with a problem. Are these institutions sustainable? For all of them sustainability is somewhat questionable. When we observe the effectiveness of some of the key areas of consideration in microinsurance-capacity, pricing, controls, growth, reserves-all have at least some strengths in one or more areas. However, in the insurance business one weakness can be an Achilles' heel. All of these institutions are significantly vulnerable. The good news is that vulnerability can be mitigated, but for some of the smaller programmes the remedies are likely beyond their capabilities. Even so, there are other mechanisms with the potential to achieve the desired result. Outsourcing may be one answer. These institutions provide many lessons; some of them learned the hard way, for developing similar programmes. These include: 1 Management and Governances To make microinsurance programs successful, management capacity in insurance is necessary. Because microinsurance is a complex business and management and staff tend to have weak capacity in microinsurance company management, it is imperative that boards be strengthened. 2 Microinsurance Products Emergency loans with disbursements made directly to the health care facility can be appropriate and sometimes preferred over insurance. Follow a product development process when developing these products. When this is done, issues are caught early and cause fewer problems to the institution. 3 Operations and Accounting Pricing of microinsurance products must improve. If they are to be successful, microinsurers must begin working with professionally derived premiums. Underwriting needs to be simple and efficient for the low-income market. Microinsurers need good accounting and timely access to management data. 4 Marketing Marketing management is a critical ingredient in creating an effective commissioned marketing team. Marketing requires a strong component of market training. Employers of low-income employees have proven a very good market with efficient access. 5 Risk Management The closer your staff members are to the health care facility, the easier it is to manage controls. The partner that carries the risk should be well capitalised and willing and able to lose some money while the product is growing. 6 Provider|Insurer|Intermediary Relations MFIs have been weak partners in microinsurance. Microfinance institutions must become more committed and involved in terms of staff incentives and support products if they are interested in getting health microinsurance to their clients. Construct formal agreements with partners so that everyone is clear about their role. Conduct due diligence exercises on partners. These programmes can go very wrong, and a good institution should not become embroiled in problems because of issues with a partner. Coordinate external health information outreach programmes with microinsurance. These institutions are blazing a trail in a new realm. Their experiences help us all to carve out a better, more efficient, and more effective trail on the way to achieving the lofty goal of providing affordable, high-quality health care to low-income families. Copyright © 2005 John Wiley & Sons, Ltd.