Transcript Slide 1

‫بسم هللا الرمحــن الرحيــم‬
39th AIO Conference
“Challenges & Opportunities of MicroTakaful & Micro-Insurance in Africa”
Khartoum, Sudan 27 – 30 May, 2012
Agenda
Micro insurance
Micro insurance in Africa
Takaful: definition & statistics
Micro insurance /Takaful initiatives

Conclusion
Micro insurance
History

Micro-insurance is not a new concept; it is a modern name for a very
old practice; to provide protection against risks; the poor
communities developed in the past informal insurance mechanisms
such as selling assets, exchanging gifts, cash transfers and
diversifying crops;

The African and/or Muslim communities were having a form of group
self insurance for weeding, death or any unfortunate event;

Since the 1970s pro-poor microfinance institutions have been
established in the semi-formal sector.

Modern micro-insurance was developed to accompany the
development of the MFI’s and NGO’s in developing countries; their
success has led to the recognition that poor people can save and want
to save.

Starting from the past few years, the insurance industry starts
perceiving the micro-insurance as a potential market segment.
Micro-insurance & Micro-Takaful
 Is Micro insurance / Takaful a business opportunity? Or is the insurance
industry CSR?
 What is the micro insurance objective? the reduction of the poverty;
helping the vulnerable population? To serve the underserved
population?
 The first option is a simple insurance / Takaful offer to a segment
(very low income population) by a commercial entity looking for
profit; while the second objective is more socially responsible and
"in line" with the essence and the principles of solidarity and
(brotherhood for Takaful);
 Both options should be beneficial for the community and insurance
/Takaful; and could make the concept more popular.
 Is Micro insurance / Takaful about small premiums /contributions?
 Micro insurance is today a hot topic for the insurance industry
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The role of insurance and poverty alleviation

Poor (-$4/day) or below the line of poverty (- $1.25/ day) population is vulnerable to:
 Sickness, death of accident of the family breadwinner;
 Natural disasters, climate change (draught);
 Fire or theft and loss of the main source of income;
 Loss of job;
 Frequency of claims / disasters in some areas greater for this category;

Savings and credit facilities can assist the poor to overcome unforeseen losses;
however, their benefits are limited to the capacity of individuals to save or make
repayments.

In bad conditions and if their consequences persist for several years e.g. drought or
flooding, then the use of savings as protection is constrained.

High risks of illnesses, or the death or disability of the breadwinner means
outstanding loans become difficult to pay;
Insurance can be an effective mechanism to mitigate the poor’s risks by
reducing their vulnerability of the impacts of disease, theft, disability
and other hazards as well as safeguarding the productive use of
savings and credit facilities.
Micro Insurance Main Characteristics

Based on insurance principles, technicalities:
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Low of large numbers,
Premium payments,
Risk transfer or risk sharing / pooling in case of micro Takaful
Simplicity: products design must be customized to cater the
differences between different segments of the very low
income population, different needs;

Affordability: If the insurance is not affordable;

Accessibility.
Micro insurance value proposition
Micro-insurance potential today
Population income
Traditional
insurance

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Low income population
Between $1.25 & $ 4
Commercial micro insurance
Very low income population < $1.25 / day
Private public private Micro insurance
4 billion (*) of potential clients for the insurance industry;
USD 40 billion of potential premiums (*)
Micro insurance covers 500 million population today (***)
The World Bank defines extreme poverty as living on less than $1.25 per
day and estimates that 1.4 billion people are concerned by extreme
poverty(**)
(*) Sigma, Swiss Re 6/10
(**) Press release Munich Re, ILO, 10th of April 2012
(***) Munich Re Foundation web site :
http://www.munichrefoundation.org/StiftungsWebsite/Topics/PovertyAndMicroinsurance/default.htm
Micro-Insurance LOB
 Life micro insurance
 Credit Life is the most dominant LOB; MFI’s can offer it with micro
credit;
 Term life, disability..
 Savings
 Health micro insurance: Hospitalization, critical
illness, loss of income
 Agricultural: crops & livestock
 Assets: Homes, small businesses
Micro insurance in Africa
World map of Human Development
Index in 2011(*)
(8) Source:
Wikipedia
Very High
Low
High
Data unavailable
Medium
Africa development indicators
Country
H.D.I(*)
GDP/ Capita
Population Million
Zimbabwe
14.0
450
12.75
Congo-Kinshasa
23.9
160
4.14
Niger
26.1
350
16.74
Burundi
28.2
160
8.04
Mozambique
28.4
430
23.7
Guinea Bissau
28.9
520
1.52
Chad
29.5
610
11.27
Liberia
30.0
297
3.48
Burkina Faso
30.5
520
15.8
Mali
30.9
690
14.5
Central Africa
31.5
450
4.49
Sierra Leone
31.7
340
6.00
Ethiopia
32.8
340
84.32
Guinea
34.0
410
0.72
Sudan
37.9
2,496
31.0
Malawi
38.5
310
13.08
Rwanda
38.5
520
10.72
Gambia
39.0
430
1.78
Zambia
39.5
1,610
13.05
 Among the 20 countries
lowest HDI, 19 are in
Africa!
(*) The Human
Development Index (HDI) is
a comparative measure of
life expectancy, literacy,
education, and standards
of living for countries
worldwide. It is a standard
means of measuring wellbeing, especially child
welfare. It is used to
distinguish whether the
country is a developed, a
developing or an underdeveloped country, and
also to measure the impact
of economic policies on
quality of life.
Ref = 100, the highest HDI
Sources:
 “The Economist Pocket
World in figures”,2012
 Wikipedia
 World bank
Economic losses vs. insured losses in 2011(*)
Region
Numbe
r
Victims
In %
Insured
loss US$ m
In %
North
America
•
50
768
2.2
39,756
Latin
American
36
1,880
5.4
631
0.5
6,558
Europe
34
1,158
3.3
4,340
3.7
8,712
Africa
51
2,894
8.3
323
0.3
1,560
Asia
104
26,189
Oceania
10
Seas
/Space
World
Total
34.4
Total loss
US$ m
63,460
75.4
49,249
42.5
260,149
233
0.7
19,106
16.5
27,814
40
1,607
4.6
2,409
2.1
3,633
329
34,729
100
115,814
100
370,877
(*)Source: Sigma Swiss Re 2/2012
Micro-insurance in Africa (*)
 Population
 GDP
 GDP/Capita
: 1,031.3 million
: USD 1,728 billion
: USD 1,675.6
 Africa total premium
 Penetration
 Density
: USD 64.7 billion
: 3.9% mainly due to S. Africa (14.8%)
: USD 64.7 (S. Africa 1,054.7)
 Population covered by micro insurance
 Total micro insurance premiums
 Micro insurance
(*) Sigma, Swiss Re 2/2011
: 14.7 million
: USD 257 million
: 0.45% of the total
premium
Micro-insurance in Africa (*)


Micro insurance is not a new phenomena in Africa; many
practices can be considered as micro insurance pooling
within the villages or the communities i.e. “tontines” in west
Africa;
Initiatives in Sub Saharan countries:

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Funeral insurance dominating the market
Credit life
South Africa:
Ethiopia: HARITA weather insurance for poor farmers by Oxfam
& Swiss Re
Sudan: micro Takaful in conjunction with micro credit for micro
projects, crops
Kenya: CIC and now Takaful Africa
Takaful
What is Takaful?
Takaful = Mutuality + Shari’a principles
Why Micro Takaful?


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Takaful is based on brotherhood and solidarity
Takaful is about pooling risks together
Takaful can benefit from donations (Zakat or religious tax)
Muslim countries are among the poorest
Micro Takaful : is not “per say” a micro insurance LOB, it is the Shari 'a
compliant version of Micro insurance
Takaful
Takaful Market Development
2012
2011
2010
2009
2008
2007
30%
Growth
22%
Growth
18%
Growth
23%
Growth
20%
Growth
20%
Growth
Islamic /Takaful Contributions by
region
Takaful Market Development
8,000.0
7,000.0
6,000.0
5,000.0
4,000.0
3,000.0
2,000.0
1,000.0
2005
Africa
2006
2007
East Indian Sub-Continent
2008
Far East
2009 est
GCC
2010 est.
Levant
2011 est.
2012 est.
Middle East (Non Arab)
Islamic /Takaful Contributions by
class
Number of Islamic Insurance operators
in 2010
Takaful Contributions in Africa
Country
GWP in USD million
2008
2009
2010
Egypt
6.2
29.3
41.9
Mauritania
0.4
0.4
0.4
Senegal
8.0
8.0
8.0
Sudan
280.7
339.6
363.4
Kenya
n/a
n/a
n/a
295.3
377.3
413.7
Micro-Takaful initiatives
Micro insurance initiatives
• HARITA : HORN OF AFRICA TRANSFER FOR ADAPTATION
Ethiopia: Swiss Re + Oxfam America 1300 families in 2010;
insurance against draught;
• Micro: a micro insurance program in Haiti that helps women
entrepreneurs bounce back after natural disasters
• Munich Re micro – insurance foundation
http://www.munichre-foundation.org/StiftungsWebsite/Projects/Microinsurance/
ICMIF Micro -Takaful Support Centre (MSC)
FOIITC and GTG formally join the ICMIF Micro-Takaful Support Centre Steering Group
FOIITC and GTG invite and encourage their members to sign up to the MSC
The three secretariats agree on action plan to introduce activity into the Micro-Takaful
Support Centre, identifying projects and start approaching potential donors and partners.
Examples of Micro Takaful projects
 Sudan: Shiekan, started in 2008
LOB: mainly Domestic credit insurance, Family Takaful , Material
damage and Livestock, Fire & Burglary & Agricultural Insurances

Malaysia: Takaful Ikhlas is offering family Takaful products with very small contributions

Sri Lanka: Amana & Muslim Aid, project for 1000 beneficiaries, linked to Micro Finance ($ 100
loans); cost of insurance $ 27/ year & compensation in case of sickness or accident, with
weekly collection http://www.youtube.com/watch?v=ZPExgpc7RkQ

Micro Takaful experience is still very limited to few cases and cannot be compared to Micro
insurance
Challenges for providing micro-insurance
/ Takaful
There are many difficulties providing insurance to the low-income sector:
 Lack of interest from financial institutions in the poor has been due to:
 Low collateral,
 High transaction costs,
 Uncertain profitability,
 High risks and,
 Inability to serve their specific needs.

The provision of insurance to the poor has been left to the MFIs, NGOs,
credit unions and cooperatives operating predominantly in the informal
sector and who face a multitude of problems;

Lack/ need for qualified and dedicated staff, internal controls, efficient
administration systems, reinsurance and resources for marketing,
distribution and education means that establishing a comprehensive,
sustainable and affordable insurance scheme is almost impossible in the
short term.

The micro-insurance provider has to compromise between how low into the
poverty sector the scheme can penetrate whilst maintaining costs recovery.
Conclusion

Commercial Micro insurance / Takaful is a promising market for the
whole insurance industry and should improve the awareness and
bring new policyholders;

Micro insurance is also the insurers CSR;

PPP Micro insurance / Takaful is an excellent mechanism to help the
very low
income population; should work in a joint venture with
MFI’s, preferably
NGO’s, and benefit from government or
international Aid support, or Zakat for
Takaful;

Developing a Micro insurance / Takaful offer is facing challenges i.e.
cost, cost of distribution, lack of support from traditional insurers
and governments;

Is Africa ready for micro insurance? The continent is far behind Asia
or Latin America in Micro insurance;
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Micro Takaful is yet to develop; why?

What’s the next step for micro Takaful? East Africa? North Africa?
Egypt?
The development of Micro insurance / Takaful is subject to an effective
partnership between MFI’s, insurers, Takaful operators and governments.
Bibliography:
* Sigma: Swiss Re N 6/ 2010
* Munich Re Foundation & ILO:
 Protecting the poor; A micro insurance compendium - Volume I
 Protecting the poor; A micro insurance compendium - Volume II
Thank you…