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Study of Micro-Insurance in

Micro-insurance in Fiji
Fiji and PNG
Pacific Microfinance Workshop,
Nadi, July 16, 2009

Socio-economic Profile Snapshot on the Employment Sector


• Population of 0.85 million Economically Active 40% of the population economically active
(44% are wage earners, 28% are self employed, 15%
• Mostly consist of Fijian and Indo Fijian
are salary earners while 11% are family workers)
• Rural Population percentage is 49
• Low density about 46 per square kilometer Industry Wise Sector % of total % of rural emp
• High density in urban areas and low in rural areas Employment

• Poverty Ratio: 35% Overall; 40% in rural and 29% in Agriculture Forestry and Fishing 28% 83%

Urban Hotel, Retail Restaurants 21% 46%

• Per capita income -3900 F$; skewed picture Community, Social and Personal
Services 20% 29%
• Decline in contribution of major sector like tourism,
sugarcane and garment sector Manufacturing 14% 48%

• 39% of the population have access to bank accounts % of women in total 30%; Mostly in Hotel and Restaurants
work force

Insurance Regulations Supervision of the Insurance Industry


• The Financial Institution Group, Reserve Bank of Fiji
regulates and supervises the insurance industry which • Its core work of supervision involves
includes 2 life insurer, 8 general insurer, 5 brokers and – Offsite supervision through analysis of quarterly
385 insurance agents. Current role and supervision financial returns, annual audited returns and other
prudential statistics provided by the company.
• The industry is governed by the primary legislations laid – Onsite examination involves assessing the institutions
out by the insurance act 1998. operation, policies and procedures with regards to
their compliance with the prudential norms as
• The act empowers RBF to develop the standards that prescribed by the regulations.
direct the conduct of insurers, brokers and agents. – The Reserve bank of Fiji is firm in verifying the
fulfillment of statutory norms laid for the insurance
• The standard terms and conditions, rates and other such companies (e.g capital adequacy, solvency margins,
functions are carried by the RBF in consultation with the etc). It does so by verifying the statements and other
insurance companies and Ministry of Finance. facts submitted by the insurance company.

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The Insurance Market in Fiji
Opinion of the Regulatory Authority about MI
• The insurance companies and brokerage firms are
• The Reserve Bank of Fiji has issued new directives for licensed under the provisions of Insurance Act 1998
driving micro finance through formal financial institutions • The sector is regulated by the Financial Institutions
Group in the Reserve Bank of Fiji. Fiji insurance
• There is no indication as of now as to whether Reserve industry consists of ten insurance companies.
Bank of Fiji plans for any specific directives for micro – Life insurance-
insurance. • Life Insurance Corporation of India
• Colonial Fiji Life Ltd
– Health and medical insurance-
• Colonial Health Care (Fiji) Ltd
• Fiji Care

The Insurance market in Fiji Overview of Insurance Market


– General insurance-
• Dominion Insurance Limited • Underwritten business contracted in 2007 due to the
• New India Assurance Co. Limited unwillingness of the insured to renew their policies or insure
• Sun Insurance Company Limited on full terms and conditions
• QBE insurance company • The gross premium income for general insurance companies
• FAI insurance company (acquired now by QBE)
declined by 4.1% to F$112.7m
• Tower Insurance
– Brokerage firms- • The gross premium income of life insurance companies in
• Aion Risk Services (Fiji) Ltd contrast continues to grow and reached a total of F$80m in
• Marsh Ltd 2007.
• Unity Insurance • The combined gross premium income for the insurance
• Connolly Insurance Brokers industry declined by marginally 0.8% to F$192.7m
• Insurance Holding Fiji Ltd.
—Agents
• 308 agents for life insurance, 90 agents for general insurance
and 73 agents for health insurance were granted licenses.

Insurance Penetration
Micro-Insurance initiatives by MFI’s
• The penetration of life insurance in terms of GDP stood at
1.4% whilst for general insurance the figure stands at
• Micro Finance Institutions have designed in house
2.0%
insurance scheme to cover there members
• The global penetration of insurance during the same time – Fiji Teachers Union Cooperative Thrift and Credit Ltd
was around 7.5% charges 1% of loan outstanding as a mortgage
• Limited to urban salaried households and Corporate protection scheme
insurance – Credit Union League on the other side charges 1.2%
of loan outstanding as a premium for its independent
• Some in-house insurance by credit unions and co- community insurance scheme
operatives – In both the cases the scheme provides cover only to
the extent of credit amount outstanding and in the
event of death of a loanee the loan amount is
adjusted from the fund.

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Current coping mechanisms
Perception about risks – Community Protection: The idea of caring for and sharing
with others is an important aspect of the value systems of
the Fijians people and they are protected by the strong
• Through FGDs community bonds
– Barely understand the concept of risk
– Burial Expenses due to death is the only expense – Individual Savings: The government run micro finance
which the poor clearly foresee schemes have helped the poor to save for meeting
– Inadequacy of Savings to meeting high expenses occasional social or seasonal expenses. The money
– Other risks identified in the focused group discussion saved by the clients is not enough to protect the clients
were from meeting losses resulting from unforeseen events.
• Vandalism and theft
• Weather Risk to crops, boats and enterprises – Credit - With increasing trend of urbanisation, people are
• Illness and Accident more prone to health and other risks and often do not
enjoy community safety net. Borrowing from informal
sources is often resorted.

Potential Outreach of Insurance in Fiji Demand side issues

Don’t Want • Lack of awareness of insurance as risk mitigation

BEYOND THE REACH OF THE MARKET • Those who have heard of it consider it to be meant for
(Market redistribution zone)
salaried or wage earners class who can pay high
premiums on regular intervals
MARKET CAN REACH FUTURE (3-5Yrs)
(Market development zone) 40,000

380,228 People in outer • Most of the insurance products ( Ex: Health evacuation/
MARKET CAN REACH NOW island and People
(Market enablement zone) (Formal in the lowest three
endowment etc) available are suited for high income
131,167 working deciles of income class.
(Additional sector)+mF
distribution
HAVE NOW 30% salaried clients
class, 30% of (approximatel
54,632 wage class, y around
(Salaried20%, 20% 30% of self 40,000)
wage class) employed)

Supply side issues


Supply side issues
• Life
– 84% of the gross premium comes from endowment products indicating • Lack of presence of insurance representative in rural area.
that the market is skewed towards middle and higher income groups.
– Only 4.3% comes from term life insurance products. Mainly broker driven market skewed to the urban regular
– Lack of Proper product design to meet the needs of the low end income clients
customers

• Health Insurance • Low density coupled with absence of proper channel


– Absence of primary and secondary health care facilities makes delivery of micro insurance unviable
– Treatment for high cost illness requires evacuation, the premium for such
products is beyond access of the poor
• Lack of support services like loss assessors in rural and
• Calamity or housing
– Getting reinsurance for housing insurance is a challenge remote areas, health care and hospitalisation facilities,
– Re-insurers unwilling to offer cover to dwellings which do not meet the reinsurance, etc
Quality parameters

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Environmental Support
• Knowledge about local risks by MFIs and NGOs is quite low
• No learning derived from in-house insurance by credit unions
and co-operatives Micro-insurance in Papua New
• Willingness of the insurance companies to move into the sector Guinea
– Looking for a critical mass
• Support of the Government or any other donor agency is not
significant
• Impediments to move into unchartered areas by insurance
companies- absence of data, support services, channels of
distribution, etc.

Socio-economic Profile Employment Status


• Population of 6.5 million Employment status Percentage
• Over 820 languages spoken with English, Hiri, Motu and Pidgin
widely spoken Wage job employment Rate 10.4
• Rural Population percentage is 85
• Life expectancy is 57
Wage job employment Rate, Male 15.2
• Poverty Ratio: 38%
• High incidence of HIV aids
Wage job employment Rate, Female 5.3
• Per capita income -850 US$
• PNG's economy has a dual economy; a 'modern' economy based on
mining (gold, silver, copper, nickel) and petroleum and natural gas Subsistence employment rate 67.4
production, and a 'traditional' one based on fishing, forestry, coffee,
palm oil, copra, cocoa and vanilla.
Subsistence employment rate, Male 60.8
• 8% of the population have access to bank accounts

Subsistence employment rate, Female 70.3

Regulatory Authorities Regulations and Supervision


• Unlike other insurance markets, the market of • Currently, any disputes between the Insured
Papua New Guinea is regulated by two bodies. and the Insurer in an insurance contract are
– The Bank of Papua New Guinea regulates the life addressed through the Common Law in PNG.
insurance industry The regulators are now in the process of
– The general insurance industry is regulated by the enacting a new law called the Insurance
office of insurance commissioner Contracts Act which would clearly outline
• The life insurance industry is governed under clauses for consumer protection in insurance
the legislations laid out by the Life Insurance contracts.
Act 2000.
• Supervision of the regulators is limited only to
• The general insurance industry is governed the extent of monitoring the capital adequacy
under the Insurance act 1995.
and solvency margins

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The Insurance market in PNG The Insurance market in PNG
• General Insurance Companies operate under
• The life Insurance companies operate under license from the Office of Insurance
license from the Bank of Papua New Guinea Commissioner and are governed by the
and are governed by the Life Insurance Act Insurance Act 1995. there are 12 insurance
2000. companies in PNG and the prominent once are
– Kwila Insurance Corporation Ltd – QBE Insurance (PNG) Limited,
– Life Insurance Corporation (PNG) Ltd – American Home Assurance Co
– Workers Mutual Insurance (PNG) Ltd – Tower Insurance Limited
– Pacific MMI Insurance Limited – Pacific MMI Insurance Ltd
– Capital Life Insurance Company Limited (formerly Pan – Mitsui Sumitomo Insurance Co Ltd
Asia Pacific Assurance (PNG) Ltd)
– Motor Vehicle Insurance Limited (Owned by Govt of PNG)

The Insurance market in PNG Overview of Insurance Market


• The insurance broking services are offered by the • The non life insurance sector in PNG is constituted by
following three international broking services groups a relatively small group of companies. The market
through their local entities: share of the largest company is 35% with another four
– Aon Risk Services (PNG) Ltd firms comprising approximately 22% of market share.
– Heath Lambert PNG Ltd
• All risks in PNG must, by law, be insured with a locally
– Niu March Ltd, of the Marsh & McLennan group
licensed insurer except if an exemption is granted by
• There is only one Reinsurance Company that the Insurance Commissioner on the grounds that local
operates out of PNG and that is Pacific Re Pty Ltd. capacity is fully utilised (section 37 of the Insurance
• The market of insurance in PNG is very small and is Act 1995). In practice, large risks in property and
limited to the National Capital District and major aviation are placed offshore.
towns across the country.

Opinion of the Regulatory Authority about MI Micro-insurance initiatives by MFI’s


• Both the regulators, the Bank of Papua New • Papua New Guinea Micro Finance Limited is
Guinea and Office of Insurance considering launching of Micro Insurance
Commissioner are aware of micro-insurance program along with credit
development elsewhere; However, no – Feasibility study conducted
immediate regulatory directions and – Discussions with insurance companies on the
incentives is expected; modalities of insurance program is being
• Expects insurance companies to seriously discussed
explore the possibility of introduction of such
program on a pilot basis

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Perception about risks Perception about risks
• The following risks were identified in the group
• Through FGDs discussion
– Common risks such as death and health related problems – Untimely Death
are addressed through strong community social net
• Funeral Expenses are high in PNG and are quite common.
‘Wantok’. Hence, it not perceived as a risk by an Traditionally funeral takes place in own village. Air travel is
individual and/or the family the only means of transport making it very costly
• Lack of commercialization in agriculture- not much – Illness/ Accidents
of financial implications on losses or any damage • People in PNG prefer to go to private health centers where
which charge high treatment cost. In absence of insurance
• Absence of micro-enterprise and hence low cover they take loans at high interest (70% per annum)
understanding of associated business risks – Loss of Asset
• People have risk to their dwelling from fire and other perils.
• Simple living style has implications on financial
– Weather risk to crop due to drought/cyclone (induced)
habits, financial literacy and development of micro-
finance and micro-insurance.

Current coping mechanisms Potential Outreach of insurance Companies in PNG

– Community Protection: Papua New Guineans are


protected through the strong social safety net ‘WANTOK’.
The idea of caring for and sharing with others is an Don’t Want
important aspect of the value systems of the people of
PNG and they are protected by the strong community they BEYOND THE REACH OF THE MARKET
live in. (Market redistribution zone)
– Individual Savings: Very few people have access to bank
accounts. But those who have access have very limited 900,000
MARKET CAN REACH FUTURE (3-5Yrs)
money in their account which is not enough to protect (Market development zone) (50% of the Subsistence
them fully against risks. The money saved is used for wage earners)
meeting other social obligations. MARKET CAN REACH NOW 650,000
– Credit: In urban areas, the migrants are prone to risks as (Market enablement zone) (50% of the
salaried class
they are exposed to harsh living conditions and are more 350,000
and (NGO)
mFI clients)
vulnerable as they do not have the cover of the social HAVE NOW (Additional
safety net. They survive by taking credit from informal 180,000 employed class *
money lenders at interest as high as 70% during (Expecting an outreach of
30%)
15% of the current
exigencies. employed class)

Supply side issues


Supply side issues • Health Insurance
• Unwillingness of reinsurance companies offering cover to – Treatment for high cost illness requires evacuation, the premium for
such products is beyond access of the poor
nationals of PNG due to lack of relevant historical data
• The situation is amplified with absence of proper medical care • Calamity or housing
and high prevalence of AIDS (mostly unreported) – Getting reinsurance for housing insurance is a challenge
• Lack of proper systems to record births and deaths. No proper – Reinsures unwilling to offer cover for catastrophic risk or covariant risk.
proof of age or certification of death and its cause.
• High prevalence of domestic violence • High Crime Rates
– PNG is known for high incidence of crime.
• Low level of literacy.
• Absence of proper channel • Poor Infrastructure facility makes delivery of insurance in
– PNG insurance market is either through direct business or is broker remote locations unviable.
driven (QBE is the largest insurer in PNG and 80% of its business comes
from brokers)
• Lack of support services like loss assessors in rural and
remote areas, health care and hospitalization facilities,
reinsurance, etc.

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Environmental Support Overall Conclusion
• Lack of infrastructure and communication facilities • Micro-Insurance market is almost non-existent in both
are impediments to provision of financial services the countries
• Knowledge of MI and capacity of the MFI, Banks, • Insurance is only limited to urban areas and to
NGOs of micro-insurance is limited corporates and salaried class
• Unwillingness of the insurance companies to move • The regulators, insurance companies and donors, at
into the rural sector due to absence of support present, do not have any road map for micro-
mechanisms such as historical data, health service insurance in both the countries
providers, loss assessors, re-insurance, etc. • Low understanding of risk and financial mitigation
mechanisms in both countries
• Support through Govt sponsored program or by
• Market Education is a pre-requisite
donor agencies is minimal.
– Educate the stakeholders like customers, intermediaries,
insurance companies and regulators.

Overall Conclusion
(Cont.)
• Product Development
– Developing products that really respond to the needs of clients and in a
way that is commercially viable.
– Historical data which is required by the industry for product design and
development is not properly collected and organised.
– Bring more re-insurers to the market
– MFIs are unaware of product development, processes for insurance roll-
out, building collaborations with financial institutions, including insurance
companies- Technical and managerial support has to be provided.
• Distribution channels
– Develop a channel for delivery of micro insurance through other existing
financial/ non-financial product distribution channels. Stand alone micro
insurance may not be viable.
• Promoting initiatives for taking insurance to the rural areas and
poor, especially through Donor and Government support