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The Microinsurance Revolution

Tina Rosenberg—The New York Times
June 6, 2012

Six years ago David Patient felt his immune system slipping. He had been H.I.V.-positive for a long time, but now he made two decisions: He started on antiretroviral medicines to protect himself, and he began trying to buy life insurance to provide for his partner.

Until then, the idea of life insurance for people with AIDS in South Africa was an oxymoron. Patient was working for one of the biggest insurance companies in South Africa on an AIDS awareness program, but it wouldn’t insure him, and neither would any other company. “Every door slammed,” he said. Then his doctor mentioned a brand-new possibility: AllLife , established to insure only H.I.V.-positive people. (Today the company also insures diabetics.) Patient bought a policy that upon his death will pay his partner a half-million rand, the equivalent of $62,500.

AllLife is not a charity, but a successful insurance company — but one with an odd business model. South Africans can get antiretroviral treatment for free, and AllLife requires the people it insures to make regular medical visits, get the necessary periodic tests and follow treatment protocols. (It can’t, of course, require that they succeed on the treatment.) AllLife has agreements with most medical providers, and can pull data about its clients. Computers track clients’ medical progress and provide reminders to get blood tests or visit the doctor. Staff members call each client once a month, and are available by phone all day, every day.

Ross Beerman, AllLife’s managing director, says that clients average a 15 percent improvement in their CD4 count — an immune system marker — six months after buying insurance, whether or not they are taking antiretrovirals (the majority of clients have not yet reached that stage). That improvement may partly be the psychology of seeing their disease in a different way: “If you think you have a terminal disease, you don’t care how you eat and exercise,” said Beerman. AllLife helps patients to be more adherent. Doctors are busy and do many things. AllLife does only one thing, and sometimes catches a problem before a doctor can. “If necessary we’ll give the doctor a call,” said Beerman.

“They are constantly following up — ‘Are you taking your meds, did you get your bloodwork done?’” said Patient. “I have a physician and I have a specialist, and now I have an insurance company monitoring me as well. They are very active in keeping me alive.”

Insurance is a peculiar product, unavailable to those who need it most. One group is people likely to make claims — if you want health insurance, for example, best not to be sick. The other underserved group is the poor.

Poor people need insurance more than wealthier people do, because they have no other cushion. Few people are always in a state of poverty. Most are cyclically poor . They work and save, but then something happens and they fall into poverty : a crop failure, a loss of a job, the death of a breadwinner. Often, the trigger for poverty is illness. The Indian Ministry of Health found that a quarter of all people hospitalized were pushed into poverty by their hospital costs — not including the cost of missed work.

Insurance offers a safety net, of course, but it is more than that. If you know you are covered, you’ll be more likely to invest in the future. “Your whole capacity to take risks changes,” says Andrew Kuper, president and founder of LeapFrog Investments , which helps to scale up companies worldwide that provide insurance to the underserved. “A daughter can go to school rather than work, the farmer can plant crops that can triple his income. We’re used to thinking of insurance as a safety net, but it’s also a springboard.”

In some ways, insurance is a particularly difficult product to sell to the poor. They don’t know what it is and don’t get how it works. “People line up at the end of the year and say: ‘I didn’t get sick. I want my money back,’” said Tahira Dosani, the director of global engagement for LeapFrog. Insurance also requires a tremendous amount of trust — you want people to give you money, based on your promise to pay them if something bad happens. That’s a hard sell for people who probably have very good reasons for not trusting outsiders.

But other barriers for the poor are the same as they have been for other financial products, including credit. It’s simply easier for insurers to go after the higher profit market of the middle and upper classes. The poor live off the banking grid, the transaction costs of issuing millions of small policies are too high and typical products aren’t designed for the needs of the poor. Microcredit overcame these barriers and now reaches hundreds of millions of people.

Now a similar revolution is beginning with microinsurance. It can piggyback on the exploding reach of cellphone banking and the infrastructure created by microcredit institutions. These both reach the poor and drive down the cost. “Now that pipes are being laid we can put insurance and other valuable things down those pipes,” said Kuper.

In the last five years, the number of people who have microinsurance has increased by a factor of 6.5 , according to the International Labor Organization. Today, that’s half a billion people.

Kuper argues that a crucial reason has been the entrance of commercial players. In 2005, only seven of the 50 largest insurance companies in the world offered microinsurance. Now 33 of the 50 do, according to the I.L.O. They are eager because this is where they’ll find growth. A report by Lloyds, the insurance market manager, places the potential market for microinsurance at between 1.5 billion and 3 billion policies.

Life insurance is likely to be a small part of the market. MicroEnsure, a London-based organization that works with local insurers to help them work with the poor, warns that people want the products they use most. “I die once but go to the doctor many times each year,” the group’s president, Richard Leftley, wrote .

When LeapFrog introduced its fund it was a week after the collapse of Lehman Brothers, and the day it closed was May 6, 2010 – Black Thursday. Yet while it sought $100 million, it raised $135 million. With that money it invests in insurance companies like AllLife, providing not just the capital to grow but also advice and guidance.

One of LeapFrog’s newest investments is in the Indian company Shriram CCL . Shriram is a distributor, not an insurer. It began in 1974 by financing secondhand trucks — their low-income buyers had invariably been rejected by conventional banks. It also runs Chit funds, an ancient way to save in India — groups of people contribute small sums regularly to a pot of money that’s available when people need it. Shriram branched out, and now targets people making about $2,500 a year with savings and loan products.

Shriram’s distribution network is crucial for selling life insurance to the poor. G.S. Sundararajan, director of the Shriram Group, said that 90 percent of Shriram’s one million life insurance customers were already clients of the company. Its representatives, who are already known and trusted, now offer life insurance and other insurance bundled in with loans. “Life insurance in India is extremely difficult,” said Sundararajan. “You can’t tell a customer he’s going to die 30 years from now. Combining it with an investment opportunity is the only way to sell to the lower end market.”

The built-in distribution network makes Shriram’s transaction costs the lowest in industry — Sundararajan says they are a third of those at a normal company.

LeapFrog also invests in AllLife, which aims to grow from about 10,000 policies to 60,000 by the end of 2016. “It’s often said that insurance isn’t bought, it’s sold. Our life insurance is bought,” said Beerman. What drives many people to contact AllLife is that except for very wealthy clients, banks require life insurance for any sort of loan — a home mortgage, business or education loan. That has effectively meant that anyone with H.I.V. — some 18 percent of South Africa’s adult population — is shut out of much of the normal economy.

AllLife’s clients pay between two and five times what H.I.V.-negative people pay for life insurance. Patient, for example, pays about $225 a month for his $62,500 policy. But policies start at $15 a month. Beerman said that AllLife, which is reinsured by Berkshire Hathaway’s Gen Re , has about 1,000 customers who make less than $200 per month. In contrast to most life insurance companies, 60 percent of AllLife’s clients are women, many of them single mothers.

One happy side effect of AllLife’s establishment is its impact on the stigma of AIDS. Nongovernment groups can explain over and over that H.I.V. is not a death sentence. But it’s a more persuasive message when a company bets its own money. “We’re saying you don’t have a terminal illness,” said Beerman. “You have a chronic, manageable disease. You’re going to live a long time. And we’ll help you.”


Tina Rosenberg won a Pulitzer Prize for her book “The Haunted Land: Facing Europe’s Ghosts After Communism .” She is a former editorial writer for The Times and now a contributing writer for the paper’s Sunday magazine. Her new book is “Join the Club: How Peer Pressure Can Transform the World .”

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