NB Financial Health
Striving for Consistency: A new guide aims to standardize impact assessments of the growing microinsurance market
Risks and unexpected events affect us all. However, for low-income people, the financial impact of an unforeseen shock such as a health crisis, the death of a breadwinner, or destroyed crops can be devastating. With minimal resources to draw on, many must rely on informal coping mechanisms, such as selling productive assets, taking children out of school either to work or because fees are no longer affordable, or relying on their support network to finance the shock, which can often cause families to spiral into poverty.
Microinsurance is an increasingly established tool that helps the poor avoid such poverty traps and manage their risks. Recent estimates suggest there are close to 270 million microinsurance clients throughout the developing world, with a potential market estimated at 3 billion to 4 billion policies. This large growth has been driven by the activity of governments, insurance companies and providers in broadening the geographic scope and range of insurance services available to low-income people. Microinsurance is increasingly perceived as a means through which to achieve broader objectives such as improved health care, poverty reduction and rural development.
That’s why assessing microinsurance’s impact has become an issue of growing importance. It is important here to note the differences between impact and outcomes. Impact is an end in itself, whilst outcomes are what lead to the desired impact. In other words, impact is generally considered as the long-term effect of an intervention, whilst outcomes are normally achievable in the short term.
The impact microinsurance has on the insured and on wider society can happen before (ex-ante) or after (ex-post) the occurrence of insured events. When we think of the impact of microinsurance, we often focus on the ex-post effects – for example, the income-smoothing insurance payments made after a failed harvest or the death of a family breadwinner. But insurance can also have an ex-ante impact, in particular by reducing the costs that poor households incur in other risk management strategies. For instance, when poor households have limited access to microinsurance, it’s common for them to diversify away from their preferred activities in order to minimise risk. This dynamic can be seen when farmers plant a variety of less productive crops in order to limit the consequences of any single crop’s failure, or when families under-invest in their children’s education, hoping to generate precautionary savings through the children’s labour. Microinsurance can change this calculus, even if an insured event never occurs.
Assessing these various impacts is vital for providers to be able to design microinsurance products and services that effectively meet the priority risks and needs of low-income people. Impact can be measured in terms of absolute and relative impact and effectiveness. Impact evaluations in microinsurance can test the effectiveness of two different insurance products, or test the effect of specific elements of the products, such as different marketing techniques, pricing structures or distribution channels. Understanding the impact of their operations on client participation and well-being can enable insurers to design better products and services, thereby increasing scale, sustainability and social impact.
Whilst impact assessments may initially appear to be retrospective in nature, looking at how different products and programmes performed, they are essentially forward-looking. Numerous stakeholders such as donors, investors and policy makers often must make a choice between competing programmes. Impact evaluations are a crucial tool for making informed choices, and knowing the impact of a specific intervention prompts stakeholders to seek improvements, try cheaper or better alternatives, and share knowledge gained with other organisations in the sector.
But since microinsurance is a nascent sector, there is a dearth of consistency amongst the impact assessments being conducted. This makes it difficult to compare programmes and draw general conclusions on the impact of microinsurance strategy. Impact assessments are costly and long-term exercises and it takes a while to create a body of knowledge. For this reason, the Microinsurance Network established “A Practical Guide to Impact Assessments,” to streamline and institutionalise set approaches to impact assessments in the field, and make different impact studies comparable. The authors address the challenges of turning study designs into practice, and explain how to best draw conclusions from given results, create reports and disseminate findings. The guide also proposes a set of core impact and outcome indicators that can provide a standard framework for microinsurance impact evaluations.
Academic scholars, microinsurance practitioners, donors and policy makers could greatly benefit from using the guide to design and carry out high-quality impact evaluations in microinsurance, which would ideally lead to consistencies and uniformity across impact assessments in the sector. This in turn will improve the landscape of products and programmes, meaning low-income people in developing countries will be better protected from unforeseen shocks.
The Microinsurance Network is the only international multi-stakeholder platform for microinsurance experts to work together and focus on key areas of development in the sector. Its mission is to promote the development and delivery of effective and responsible insurance services for low-income people by encouraging shared learning and facilitating knowledge generation and dissemination.