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Effectiveness of Microinsurance programs in Philippines: Metrics used for measuring the effectiveness by
MicroEnsure
By: William H. Martirez Country Manager
MicroEnsure Philippines July 5, 2015 – Bangi, Malaysia
About Us
MicroEnsure: A specialist provider of
insurance to the low and middle-income market with active clients in markets across Africa, Asia and the Caribbean. We provide a range of life, health, property and weather-index products via a range of distribution partners that include microfinance companies, banks, co-operatives and mobile network operators. Our business model
The team starts developing its first microinsurance models
2002
The Micro Insurance Agency is established as a wholly owned subsidiary of Opportunity International
2006
The Micro Insurance Agency is renamed MicroEnsure
2008 2013
MicroEnsure Asia is formed as a joint venture between Telenor Group and MicroEnsure Holdings Ltd.
Opportunity International divests its majority stake and MicroEnsure secures external investment from IFC and Omidyar Network
Our History
About Us
MicroEnsure Philippines MicroEnsure Insurance Brokers Philippines, Inc. Started operations in 2007 Registered as an insurance broker Issued more than 9 Million Policies since 2007 At present, we work with partners in more than 50
provinces nationwide
Innovative Products Weather index-based crop insurance HospiCash Fire & Calamity insurance
o Paid out more than Php318 Million in Calamity insurance claims covering around 61,000 families
What is Microinsurance?
Microinsurance is the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved.
~Protecting the poor A microinsurance compendium
Microinsurance is providing the poor access to a basket of risk
protection, support and services in exchange of affordable premium payments in pursuit of poverty reduction.
~MicroEnsure
Microinsurance is an activity providing specific insurance, insurance‐like and other similar products and services that meet the needs of the low income sector for risk protection and relief against distress, misfortune and other contingent events.”
~Technical Working Group (TWG, 2010)
Metrics used for measuring the effectiveness of Microinsurance
program in the Philippines
Protecting the poor: A microinsurance compendium
Excerpt: Performance standards are operational goals that help a microinsurer achieve viability, while indicators are used to measure the extent to which the established standards are achieved.
These indicators, both qualitative and quantitative, should be primarily focused on key financial measures since these provide a rapid assessment of the organization.
For these to be useful and manageable, there should only be five to twelve initial key indicators.
The primary indicators used to measure the performance of Microinsurance service providers are: • The number of new policies • Amount of premiums collected
Protecting the poor: A microinsurance compendium
Indicators in four key areas: By Denis Garand and John Wipf
1. Marketing and distribution - Participation Ratio, Renewal Ratio, Persistency Ratio 2. Financial management and viability
- Net Income, Liquidity Ratio, Solvency Ratio
3. Efficiency and client value - Expense Ratio, Incurred Claims Ratio, Time to Payout
4. Investment management - Asset diversification, Asset quality, Asset-liability matching, Matching interest rate guarantees
Protecting the poor: A microinsurance compendium
Indicators in four key areas:
1. Marketing and distribution • Participation Ratio – refers to the proportion of eligible members of a
target population participating in the MI program at a given point in time
Participation rate = total number of members s
eligible members of the target population
• Renewal Ratio – is the percentage of clients who had coverage in the previous year and are still eligible for renewal, who are renewing their term coverage
Renewal rate = (number of clients from Year X continuing coverage in Year X + 1)
(number of clients in Year X)
• Persistency Ratio – refers to the number of clients from a cohort continuing their coverage at a later date divided by the number of clients from the same cohort with coverage in Year X
Persistency Rate = “same with the renewal rate but is more general because it applies to both term and continuous coverage”
Protecting the poor: A microinsurance compendium
Indicators in four key areas:
2. Financial management and viability • Net Income – reflects performance in all activities in the
period reviewed. It is the net of subsidies and grants received
Net Income = Earned premium + investment income – claims
incurred – operating expenses – reserve increases
• Liquidity Ratio – cash equivalents in paying claims and expenses
Liquidity ratio = cash and cash equivalent investments
probable payouts within a year
• Solvency Ratio – is the total liabilities of the microinsurance scheme divided by its admitted assets
Solvency ratio = total liabilities s total admitted assets
Protecting the poor: A microinsurance compendium
Indicators in four key areas:
3. Efficiency and client value • Expense Ratio – is the proportion of the premium
earned in a given period consumed by incurred operating expenses in the same period
Expense ratio = Incurred operating expenses Earned premium
• Incurred Claims Ratio – is the total incurred claims divided by earned premium in a given period
Incurred claims ratio = incurred claims
earned premium
• Time to Payout – is the days it takes for a client to receive a payment after the occurrence of an event. Paying claims promptly is an important aspect of service and good value.
Protecting the poor: A microinsurance compendium
Indicators in four key areas:
4. Investment management • Asset diversification – reflects the amount invested in
a particular asset including a related organization
• Asset quality – reflects the overall quality of the portfolio
• Asset-liability matching – requires projections of liability streams such as claims, expenses, maturities, etc.
• Matching interest rate guarantees – a microinsurer offering long-term interest rate guarantees must have ready access to quality investment instruments with matching term and interest rates to cover payment of guarantees
Performance Standards for Microinsurance in the Philippines By Philippine Insurance Commission
The SEGURO indicators are divided into the following categories: • Solvency and Stability – measure the degree of safety, soundness
and strength of MI provider o Margin of Solvency Ratio, Liquidity Ratio, Leverage Ratio
• Efficiency – determine the ability of MI business to generate sufficient earning to cover the expenses and claims incurred o Underwriting Costs Ratio, Operating Expense Ratio, Claims or Loss Ratio,
Time to pay-out
• Governance – determines if the conduct of the MI business complies w/ the principles of good governance
• Understanding of the product by the client – comprises a set of indicators that determines clients’ understanding of the product and services provided by the MI provider o Renewal Ratio, Claims Rejection Ratio
• Risk Based Capital Ratio – determines the sufficiency of the insurer’s capital to support the degree of risks associated w/ the entity’s operations and investments
• Outreach – determine the extent of the MI business o Growth in the number of MI clients and volume of MI business
Regulatory Framework for Microinsurance in the Philippines
Characteristics of Microinsurance Contract
Clearly states the face amount, benefits, and terms of the insurance coverage; Is easily understood by the insured and printed in English or Filipino; Has simple documentation requirements; Has contributions/premium collection that coincides with the cash flow of the insured and are not onerous for the insured; and Claims are paid in not more than 10 days
PACE Analysis The ILO Microinsurance Innovation Facility’s client value assessment tool called PACE (Product, Access, Cost and Experience)
product
cost
access
experience
1. Product1. Coverage, service quality,
exclusions, waiting periods2. Sum insured to cost of risk3. Eligibility criteria4. Value-added services
3. Cost1. Premium to benefit2. Premium to client income3. Other fees & costs4. Cost structure and controls
2. Access1. Choice and enrollment2. Information &
understanding3. Premium payment
method4. Proximity
appropriate
accessiblesimple
affordable
4. Experience1. Claims procedures2. Claims processing time
& quality of service3. Policy administration &
tangibility4. Customer care
responsive
PACE Analysis • This study was scored using the four core dimensions of a Microinsurance Product such as: Product, Access to the Poor, Cost and Experience
INFORMAL PARTNER-AGENT MBA COOPERATIVE
INSURANCE MICROENSURE
PRODUCT 1.8 3.3 3.6 3.7 4.3
ACCESS 4.3 4.0 3.6 3.8 4.0
COST 3.4 4.0 4.3 3.9 4.3
EXPERIENCE 3.2 3.8 4.3 3.3 3.7
Dimension WEIGHT CRITERIA
PRODUCT 5 Coverage, quality of
service, exclusions and waiting periods
Sum Insured in Relation to Cost of Risk
Eligibility Criteria
Value Added Services
ACCESS 5 Choice of Enrollment Information and understanding in
relation to complexity
Premium Payment Method
Proximity
COST 5 Premium in relation to
benefit Premium in relation to
client income Other Costs
Cost structure and Controls
EXPERIENCE 5 Claims processing procedures
Claims processing time and service quality
policy administration and tangibility
Customer Care
MILK Study (Business Case) MILK Brief #14: The Business Case for Life Microinsurance in the Philippines: Initial Findings
Robust growth for the five microinsurance programs covering the years 2008-2011
MILK Study Cont… The Business Case for Life Microinsurance in the Philippines: Initial Findings
Loss ratios increases during the study period (a high incurred Loss
Ratios could indicate that clients are paying for something they use)
MILK Study
“MILK defines client value as a combination of financial value, expected value, and service value. One way to assess the financial value of this insurance payout is to compare the premium paid over a client’s tenure with TSKI to the payout received after the flood.” “From a cost-benefit perspective, MicroEnsure’s product has significant financial value for those who received payouts. Those clients who had been with TSKI for one year had paid in only USD3.45, therefore the USD230 payout represented an enormous return of over 66 times the premium paid.”
(Client Value) MILK Brief #17: “Doing the Math” – Calamity Microinsurance in the Philippines
Studying MicroEnsure’s Calamity Insurance in Mindanao and Panay
Performance Indicators For Microinsurance A Handbook for Microinsurance Practitioners By Denis Garand and John Wipf
• Product Value • Indicator 1: Incurred expense ratio • Indicator 2: Incurred claims ratio • Indicator 3: Net income ratio
• Product Awareness & Client Satisfaction • Indicator 4: Renewal ratio • Indicator 5: Coverage ratio • Indicator 6: Growth ratio
• Service Quality • Indicator 7: Promptness of claims settlements • Indicator 8: Claims rejection ratio
• Financial Prudence • Indicator 9: Solvency ratio • Indicator 10: Liquidity ratio
Performance Indicators For Microinsurance A Handbook for Microinsurance Practitioners
• Product Value • Indicator 1: Incurred expense ratio = Incurred expenses Earned premium
• Indicator 2:
Incurred claims ratio = Incurred claims
Earned premium
• Indicator 3:
Net income ratio = Net income
Earned premium
• Product Awareness & Client Satisfaction • Indicator 4:
Renewal ratio = Number of renewal s
Number of potential renewals
• Indicator 5:
Coverage ratio = Number of active insured
Target population
• Indicator 6: Growth ratio = (Number of insuredn – Number of insured)n-1
Number of insuredn-1
Performance Indicators For Microinsurance A Handbook for Microinsurance Practitioners By Denis Garand and John Wipf
• Service Quality • Indicator 7: Promptness of claims settlements = Analytical breakdown of
service times taken to report and process a set of claims
• Indicator 8: Claims rejection ratio = Number of claims rejected
Number of claims in the sample
• Financial Prudence • Indicator 9: Solvency ratio = Admitted assets
Liability
• Indicator 10: Liquidity ratio = Available cash or cash equivalents
Short-term payables
Corner Jayme-Commission Civil St. Brgy. Benedicto, Jaro, Iloilo City,
5000 Philippines
t: +63 33 329 0729
