As my deadline for this review drew nearer, I asked myself why I’d volunteered to read a book in microinsurance. Is it because I’d recently been corresponding with Amos Kirigwi, editor of the Actuarial Students’ Society of Kenya’s magazine? Is it because I’ve recently set up an innovation team in the regulator where I work? Or is it because I have a social conscience?
It turns out to be all of these – and none of them. I didn’t know a lot about microinsurance before I read the book, and now I know a lot more and feel able to express a view.
The book is a good introduction to the topic and, more importantly, it’s really interesting.
For me, the big thing was the stories. Lots of stories. About actuaries working with farmers, travelling into remote areas, meeting people who need insurance and using new ways of explaining how insurance works.
The best story is the one about the ‘treasure basket’ game.
People get lollipops and then draw cards to simulate real-life events such as death. The first round is played without insurance, the second round with insurance. This generates stories about what happens in a disaster (borrowing, debt) and how insurance helps a community as a whole. The organisers waited for two months before returning with insurance products for sale, so the community could absorb the learning and discuss.
Another good story is about meeting with farmers to validate weather data. Farmers are more likely to remember bad years more accurately than national agencies as they are so closely affected, and they can directly provide data on farming practices and crops. Know your customer
Most of the stories are about meeting the people who need insurance in order to develop products that are useful. For example, understanding that a farmer might find a $20 payout makes a difference after a drought means that products with small sums insured can be developed.
In a world of electronic verification of identification, it’s interesting to read that evidence of death could come from a chit provided by a grave digger. Also, beggars and street people need life and health insurance when they borrow money, otherwise loans are not repaid and lenders move away from this part of the population.
For me, as a conduct of business regulator, it’s good to see product design and pricing starting with the customer. I also like the fact that products are simple and focused on giving customers maximum utility for their money.
One benefit of speaking directly to customers is that actuaries can get more data to use in pricing and reserving. The contributors consistently make the point that data is hard to come by and actuaries need to work on data collection and understand the mechanisms used to collect data (it being texted in, for example). The book has some good tips, which are probably of wider application than microinsurance.
I do believe insurance can be a force for good by nudging people to better decisions. A good example in the book is the Sajida Foundation, which provides community healthcare alongside insurance. The health workers persuade women to give birth in hospital, which is a lot less dangerous than giving birth at home.
I wonder if the Certified Actuarial Analyst qualification is going to train people who work in microinsurance. It would be useful to make sure the syllabus covers the skills needed.
I’m not convinced that microinsurance needs a definition or special treatment by regulators. Something I plan to think about is whether capital levels for insurers are a barrier to entry for innovators, and the same question applies to microinsurance. However, customers of all insurers are entitled to protection.
The approach of starting with the customer is genius and one that all financial service providers should adopt. I loved the closeness between the people designing products and those using them.
My big takeaway is that actuaries working in microinsurance are facing pretty much the same challenges as other actuaries, although perhaps in different proportions and in more discomfort. The innovative solutions found by the actuaries working in this area can and should be used more widely. Kathryn Morgan is director of regulatory operations at the Gibraltar Financial Services Commission