Bryan Farris

Mobilizing Savings Through Insurance

Editor’s Note: Recently, Bryan Farris spoke with Mary Ellen Iskenderian, President and CEO of Women’s World Banking, one of thought influencers and industry leaders in microfinance with a focus on female entrepreneurs and customers in 27 countries. As WWB notes, the organization not only provides women access to financial services but “also control over their assets.” This post is the among of several topical discussions centered on the many financial, cultural and societal issues facing women in developing markets. (Earlier posts can be found here, here and here.). Let’s talk about savings incentives and methods to encourage asset accumulation. What is your opinion of match-savings programs to encourage savings amongst the poor?

Another asset accumulation method, conditional cash transfers, has been successfully implemented (most notably in Brazil); is there the potential to couple conditional cash transfers with a savings program, in which the cumulative amount of cash transferred goes up as the frequency of withdrawls goes down?

Mary Ellen Iskenderian: I think this is some of the cutting edge stuff that people are talking about. There is huge value in both matched savings and in tying savings to conditional cash transfers. There is a conversation going on in the financial inclusion work that the UN is doing about making savings behavior one of the behaviors that is encouraged through the conditional cash transfers. The way it works is that if you save a certain amount, you will get a cash transfer, which is in effect a matched savings deposit. There is a lot of possibility here.

That being said, we’re not seeing a real dearth of savings amongst the very poor. In the Women’s World Banking network we see households saving 15 to 20 percent of their monthly income.

The issue that we’re seeing is that the savings aren’t being mobilized. Savings tend to be held in order to prevent against that catastrophic illness or that crop failure that could just wipe them out. This leads us to an interesting question: If you could take care of that problem, through a much much smaller monthly insurance premium payment, what would happen to that other capital that is being saved? Essentially people are saving up enough to protect themselves from falling into danger if there is a wipeout circumstance and therefore that money just sits in their account and is not actually deployed to accumulate capital.

Mary Ellen Iskenderian: Correct. If you could be offering a monthly premium insurance product that would cover the cash to meet the health emergency or other type of emergency, how could you free up the rest of the savings capital and what would it be used for?

In the places where health insurance is in place, and there are very few, extra savings tend to be spent on school fees. The poor women that I speak to across the world see the education of their kids very much as a form of investment. Lets talk more about micro-insurance. Most people agree that insurance products would be very helpful but the administration of them is extremely difficult. The question I always ask is…how do you verify that a claim is warranted? It seems like a very challenging thing to do without a large, costly network of claim processors.

Mary Ellen Iskenderian: I think that’s a question that gets to the heart of microfinance generally. One of the ways that microfinance has differentiated itself and has been able to offer services to a previously unbanked market is one distinguishing factor: you have to know your customer.

It’s critical to really understand your client’s needs and literally who your client is.

For instance, in Jordan we are piloting a health insurance program. We’ve done a few things to make it cost effective. First of all, the insurance product has to be accompanied with a loan. This makes collection of premium payments easy because the loan officer is visiting the client anyways, but it also means that our loan officers know all of the clients in the insurance program on a personal level.

We have about 6,000 policies taken out in Jordan and over the last 10 months we’ve had about 120 claims, all of which have been settled within two days. I don’t think there’s any other insurance company in the world that has gotten thank you letters from its clients.

The policy, the way it works, essentially provides a per-diem to women when a health problem arises so that they can afford to take time away from work to recover or to help their children recover, without having to close down their business or forgo income. This is extremely important because our research showed that a health incident often led to women liquidating their businesses in the short term and losing whatever gains they had. What we’ve been delighted to see is that fully 60 percent of the claims have been used for the women themselves facing complications with pregnancy.

This is extremely exciting because in many developing countries, women’s health issues are not prioritized. The average time between the onset of an illness and the decision to visit a doctor is three days for a child, five days for a man and a full nine days for a woman. In the case of childbirth complications, 9 days is the difference between life and death. Is the insurance product financially sustainable because you are able to charge the loan officer’s time to the loan product? What exactly does the policy cover?

Mary Ellen Iskenderian: Certainly, the use of a loan officer helps to minimize the administration costs, but the policy itself is profitable as well.

Insurance experts tend to call the policy “business interruption insurance” because it is, very simply, a per diem for every day that the woman has to be away from her business. Over time, the number of days covered goes up.

Health Care
financial inclusion