Micro Insurance Helps the Little Guy?

Micro-insurance can make a real difference...

Gurinder Shahi


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Kenya: Micro Insurance Firms to Cater for Violence Claims

Business Daily (Nairobi)

18 February 2008
Posted to the web 19 February 2008

Steve Mbogo

Michael Owino used to run a phone shop in Kisumu City. However, it was vandalized during the post-election violence and he lost stock worth about Sh300,000. He lost his livelihood.

Mr James Kamau, a pharmacist in Busia, lost his entire stock worth Sh800,000. He and his family of five sought refuge in Uganda. Estimates put the losses within the small and medium enterprises sector at about Sh4 billion.

This would have been doom and gloom for the business owners, where a majority of Kenya entrepreneurs fall, if a new concept of insurance, known as micro insurance, had not landed in Kenya. Micro insurance is essentially insuring low income households by enabling them to pool together small amounts of money, which is then used as a premium to cover their specific risks.

Unlike the conventional insurance, micro insurance requires clients to pay low premiums and is generally targeted at people working in the informal sector.

In countries like India and South Africa, micro insurance has been used to empower the poor, ensuring that as many people as possible access related financial and medical services in addition to having 'shock absorbers' for such risks.

Statistics indicate that of the four billion people worldwide who live on less than two dollars a day, less than 10 million have access to any form of insurance. In Kenya, the concept was initiated by the Co-operative Insurance Company (CIC) and the United Nations Development Programme.

Through partnerships, it has now been embraced by various micro-finance health management institutions including the National Health Insurance Fund (NHIF)

CIC is for instance making unconditional claims payment for losses resulting from the political violence, contrary to other insurance companies that have said honouring such claims will be conditional.

Claims so far lodged with the company are about Sh60 million, mainly from small businesses that were either looted or burnt during the violence resulting from a disputed presidential vote tallying process. That is why for Mr Owino and Mr Kamau, reestablishing their businesses again will not be a headache.

Mr Nelson Kuria, the managing director of the CIC explained that the decision to honour the claims is based on the company's business model and social considerations.

"Ours is a co-operative insurance with a social consideration, different from the commercial insurance companies," he said. "When you are in this kind of business one cannot be a hard-nosed capitalist." CIC currently insures 75 microfinance related schemes. It has insured a total of 163, 784 individual members with a total sum insured being Sh17. 76 billion as of December 2007.

Mr Kuria said the decision to pay the claims arising from the political risk is because microfinance unlike the conventional commercial insurance products is not run using the traditional business model.

"Micro insurance products have minimum exclusion," said Mr Kuria. "The kinds of people who are interested in these products require simple and straight foreword products."

It offers micro insurance products that cover death and total permanent disability, funeral expenses, personal accident, fire and burglary. Others include comprehensive inpatient family medical cover personal accident, funeral expenses and livestock insurance

And now for the first time, the concept is to be extended to hawkers through a comprehensive product that first provides basic personal accident cover of up to Sh100,000 in the case of death, total disability and a weekly income in case of an accident for at least 104 weeks or two years. The second segment covers funeral expenses which are paid for within 48 hours. This will be up to Sh30,000.

The third is the medical cover which comes in handy because of the vulnerability of the low income earners to diseases essentially because of their lifestyle.

The cover bears very little exclusions and enables the holder to get medial attention from private, government and mission hospitals.

For this segment of the cover, CIC has partnered with the National Health Insurance Fund, which means the cover will provide a family package for inpatient services only.

Premium paid will depend on the size and the risk and the level of benefit facing the particular group or scheme but will range from Sh10 to Sh15 per day.

Around the world, the concept is also gaining prominence. Early this month, the Micro Insurance Agency (MIA), which is part of the Opportunity International, a global microfinance charity received unspecified funding from the Bill and Melinda Gates Foundation to provide life, health and crop insurance to 21 million poor people in 11 countries in Africa, Asia and Latin America.

MIA has previously developed weather-indexed crop insurance programme piloted with the World Bank for smallholder farmers in Malawi. In Kenya, the group has 7,500 microloan clients in Kisumu, Eldoret, Busia, Bungoma and Kisii.

Micro insurance is also seen as important in enabling people to pay for their health costs. For instance, the International Finance Corporation (IFC) -the private sector arm of the World Bank advocates "risk pooling" as the best way to pay for health care in economies that are characterised by low incomes such as Kenya.

Kenya currently uses the out-of-pocket payment systems that the IFC says is a burden to many low-income earners. "Risk pooling arrangements are powerful tools for encouraging the development of higher-quality, better organised private sector service providers," says the report on opportunities for health investments in Africa.

Risk pooling can take many forma and one of the ways suggested is for the public to be come subscribing members to hospitals who then reinvest the money ansd use it to run the hospitals.

Other models are like that adopted by the NHIF which has developed a product where members can pay between Sh30 to Sh320 for inpatient cover with very limited exclusions.

The next step for Kenya is to develop regulation mechanism for micro insurance. The industry is calling for a Micro Insurance Bill to be enacted by the parliament.

Insurance Regulatory Authority's chief executive officer Sammy Makove said the body is in the process of identifying a consultant to head the process of reviving the Insurance Act and micro insurance sector will be one of the focus points.

"The consultant will work with all stakeholders including consumers. Only few countries like India have come with regulations on micro insurance and our consultancy will borrow from that country," he said.