Introduction

The poor and low-income people of Bangladesh are more vulnerable due to the exposure to various shocks originated from illness, unexpected death, asset or property loss, natural calamity etc. which cause severe setbacks that drastically reduce the assets of poor and low-income households, eliminate their income sources and reduce consumption. To cope up with the shocks, these households borrow from various sources, withdraw th eir savings, or sell their assets. As a result poor people remain trapped in the vicious circle of poverty. Palli Karma-Sahayak Foundation (PKSF) strongly perceived that addressing risk mitigation needs of the poor are essential for its nationwide poverty alleviation drive. PKSF also deemed that inclusive insurance services for the poor could be a viable risk management option which may help the poor and low-income households to recover from various perils.

In this backdrop, Palli Karma-Sahayak Foundation (PKSF) successfully implemented a pilot microinsurance project titled ‘Developing Inclusive Insurance Sector Project (DIISP)’ with the financial grant support of the Japan Fund for Poverty Reduction (JFPR) under the cooperation of the Asian Development Bank (ADB). The project implementation was started in January 2010 which has been successfully completed in December 2014. The physical completion date of the project was December 31, 2014. The objective of the pilot project was to protect the livelihoods of poor households, especially women, from risks such as accidents, illness or natural disasters—to secure their welfare and assets through the development of low-cost microinsurance services. Key innovative aspects of the project were addressing the needs of the poor through reducing vulnerability, building protection against shocks by developing affordable insurance services and expanding insurance service outreach through the network of MFIs in a sustainable approach.

Specific objectives of the projects

(i) Extend and Increase affordable insurance services for the low-income people of Bangladesh.
(ii) Decrease unexpected expenditures or resulting loss of assets, to cope with risks of poor households those will be covered by the pilot microinsurance schemes under DIISP.
(iii) Extend insurance awareness campaign and training to low-income households in order to enable them familiar with the insurance concept, formal and informal risk coping mechanisms.
(iv) Increase capacity of MFIs on microinsurance operations to develop institutional expertise in insurance underwriting, financial management, product development and marketing.

2.0 Project Activities

Project activities were divided into four components. Component-wise major activities of the project are mentioned below.

3.0 Implementation Status

3.1 Market Survey
A nationally representative and comprehensive ‘microinsurance market assessment survey’ has been conducted under the project to develop a consolidated profile of poor and low-income people of Bangladesh—including their knowledge of insurance services, risks, income and expenditure patterns, seasonality of income and spending, health and health care conditions, ability to afford insurance premiums and willingness to pay, association and linkage with existing risk mitigation services by microfinance institutions (MFIs). About 3,500 households were chosen in the study throughout the poverty-prone areas (e.g., coastal, island, char & haor areas) of Bangladesh. The survey decisively examined the extent of the health, lifecycle, financial, disaster and other shocks faced by the poor and subsequently the economic burden these inflict upon the poor.The core focus of market assessment is to evaluate the scope and design of viable microinsurance ‘products’ or ‘services’ for the poor that can adequately help address the concerns over vulnerability. The market assessment survey was conducted by an international consultant which is one of the most inclusive market assessment surveys that has undertaken in the context of Bangladesh.

3.2 Products Design
Based on survey findings and data from other relevant sources (data from POs, WHO mortality data etc.), potential microinsurance products were developed for pilot testing that include a variety of poor-friendly life, health and livestock insurance products. Products are designed with the assistance of an international level actuary which includes benefit, terms, eligibility, premium, restrictions, administration, claim verification, and monitoring. The products are “user-friendly”, simple, and easy to understand for the target people.

3.3 Regulatory guidelines for Microinsurance
A review of the current legal and policy framework relevant to microinsurance has been conducted under the project with the assistance of an international microinsurance legal specialist for development of a conducive regulatory environment for the promotion of the microinsurance sector of Bangladesh. To expedite the sector development and for the successful execution of microinsurance pilot scheme of the project the legal specialist has drafted regulatory guidelines, which include definition and types of microinsurance products, policyholders rights & duties, financial management, confidentiality and restrictions, governance etc. PKSF ensured the participation of all stakeholders during the preparatory stage of the draft regulatory guideline. The Microcredit Regulatory Authority (MRA), the regulatory authority of MFIs in Bangladesh has promulgated in its rules (MRA rules 2010, clause 25) that the MFIs may offer insurance services to its members. There is no detail about the process and nature of providing insurance services by the MFIs. PKSF shared the draft regulatory guidelines of microinsurance to MRA which will assist them in finalizing microinsurance regulations for the sector in detail. Based on the draft regulatory guideline an ‘Operational Manual’ has been prepared for the field level pilot testing of microinsurance.

3.4 Selection of Microfinance Institutions (MFIs)
40 potential MFIs which are highly experienced partner organizations of PKSF were chosen to implement the field level pilot testing of microinsurance.MFIs were selected based on their experience and capacity of implementing insurance programmes. PKSF has also considered overall operational performance of MFIs and selected them by covering almost all geographical zones of Bangladesh.

3.5 Capacity development
Capacity development of relevant PKSF and MFI officials on microinsurance operations was one of the major targets of the project. The project unit carried out plenty of seminars, workshops and training sessions on regular basis to disseminate the knowledge of microinsurance focusing on its concept, risk mitigation needs of poor, operational techniques, administration, local and international practices of microinsurance etc. All the relevant officials of 40 selected MFIs have received quality trainings on micoinsurance operations which include- awareness creation, underwriting and claims management, financial management, asset management, monitoring and evaluation, MIS, service quality, fraud management, reporting, etc. Capacity development activities were continued till the end of the project. Microinsurance Operational Manuals were given to the MFIs as a guidebook for the better implementation of microinsurance pilot testing.Laptops were supplied to the respective branches of 40 MFIs for smooth preservation of records and MIS operations.

3.6 Awareness Creation
40 MFIs under the project were engaged in awareness creation and promotion of microinsurance among their members throughout the country. Trained officials of MFIs were engaged in promoting insurance awareness among their members during the pilot testing. The project has produced brochures, educational posters and microinsurance dramas for the purpose of awareness creation of poor. Brochures and posters were supplied to the respective branches of MFIs to run promotional activities. Television and DVD players were also provided in respective branches of MFIs to play promotional dramas and documentaries among their members.

3.7 Microinsurance Pilot Testing
The project has successfully tested actuarial based Credit life (Microcredit Insurance), Livestock (cattle), Health (hospital cash benefit) insurance services and also piloted a basic healthcare (paramedic service) services during the pilot phase of DIISP. 40 MFIs under DIISP have participated in microinsurance pilot testing and disseminated insurance services to their members.

3.4.1 Credit life Insurance (Microcredit Insurance)
All of the 40 MFIs under the project were engaged in field level piloting of Credit Life Insurance throughout the country. MFIs have provided Credit Life Insurance services to their borrower members from September 2013 to December 2014. Under this insurance policy, borrowers’ outstanding loan amount with the MFI is waived as policy benefit in case of death of the borrower or spouse/main earning person of the borrower’s family during the borrowing period. A cash benefit of BDT 5,000 is also provided to the family of the deceased. To get the loan waiver benefit under this scheme it is mandatory for the borrower members to pay a maximum of 0.7% of the loan amount as premium. Borrower also has to pay BDT 40 per loan as an additional amount of premium to obtain the cash benefit coverage under this policy. Borrower has to pay premiums and obtain the policy prior to receive the loan from the MFI.

Piloting status of Credit Life Insurance
(September 2013 to December 2014)

3.4.2 Hospital Cash benefit Insurance (HCB)
80 branches have been selected from 40 MFIs (2 branches from each MFI) for the field level pilot testing of health insurance program under DIISP. Members of 80 branches are eligible to buy hospital cash benefit (HCB) insurance policy for them and their family under health insurance scheme of the project. Policyholder member and his/her insured family members are entitled to receive hospital cash benefit if any insured person under the policy is hospitalized for more than 24 hours. In that case BDT 200 to BDT 400 per day is given as cash benefit for a maximum of 30 days, excluding the first day. Policyholder member has to pay BDT 250 to BDT 500 as premium for one year to obtain a HCB policy. The HCB policy is optional for the members and yearly renewable. The Pilot testing of HCB launched in January’2014 in 80 selected branches. Implementation of health insurance is new to MFIs. They do not have startup capital for health insurance. In this regard the project has provided a financial grant to the respective MFIs. The grant is used for primary claim settlement of HCB.

Piloting status of Hospital Cash benefit Insurance (HCB)
(January 2014 to December 2014)

3.4.3 Paramedic Service
A basic healthcare service has been introduced from January’2014 in the same branches where HCB was piloted. Each of the branches has appointed one qualified paramedic whose duty is to- raise health awareness among the branch members and their families, provide basic healthcare to the patients and refer patients to qualified doctors and hospitals if needed. In addition, the paramedic creates awareness among the beneficiaries about the necessity of health insurance and plays a crucial role for the promotion of HCB. Moreover, the paramedic has to organize especial static/satellite clinic once in a week. A qualified doctor is hired by the respective MFI branch to provide primary healthcare to the patients through the weekly static/satellite clinic organized by the paramedic. For the smooth implementation of above services the project has provided necessary management and administration cost for one year as grant to the respective branches of MFIs under DIISP. All the branch members and their families are entitled to receive above healthcare services. The project has also supplied health cards for the members in all respective branches. Health cards are provided to keep health information of members and their families.

Piloting status of Paramedic Service
(January 2014 to December 2014)

3.4.4 Livestock (cattle) Insurance (health card):
28 MFIs under DIISP are engaged in pilot testing of livestock (cattle) insurance. It is mandatory for the borrowers under beef fattening program to obtain livestock insurance policy for their cattle under DIISP. To obtain a policy the borrower has to pay 0.7% of loan amount as premium per cattle to get their cattle insured for the period of six months. In case of death of cattle-head during the insured period due to conventional mortality or Natural Catastrophe/Epidemic 100% loan amount of the borrower with the MFI is waived. Borrower’s life could be covered by the policy against an additional payment of 0.3% of loan as premium. In that case same benefit is applicable in case of death of the borrower during the insured period. The premium for cattle insurance has to be paid by the borrower during the time of policy issuance and at the beginning of the loan cycle. Other terms and conditions of cattle rearing should be strictly maintained by the borrower.

Piloting status of Livestock Insurance activities under DIISP
(January 2014 to December 2014)

4.0 Covariant Risk Management (CRF)
Covariant/catastrophic Risk is a risk or combination of risks that affects a large number of the insured items/people at the same. Covariant loss generally incurred due to epidemic, natural or man-made disaster, or else, covariant risk may arise in insurance programs due to extreme situation (e.g. excessive/abnormal claims) in health, financial and lifecycle shocks among the policyholders. For the uninterrupted continuation of insurance program, the support of reinsurance is essential to provide protection against covariant risks. Reinsurance refers to the practice of insurers transferring portions of risk portfolios to other parties (e.g. Reinsurance Company) by some form of agreement in order to reduce the likelihood of having to pay a large obligation resulting from an insurance claim. Reinsurance service is absent for insurance providers like MFIs. In this respect, as an alternative of reinsurance, PKSF has established a covariant risk fund to meet obligations to pay claims associated in the event of a catastrophe. In case of any catastrophic event/s, PKSF will compensate the MFI under DIISP affected by catastrophic event/s from CRF. In turn the MFI shall pay the claims directly to their affected policyholders. CRF has been created initially with the contribution from PKSF’s own fund. The project also has a reinsurance allocation for meeting such catastrophic obligations during pilot testing if needed. Besides, The MFI has to pay required fees and charges to get access to CRF services.

5.0 Conclusion

Microinsurance pilot testing under DIISP has been successfully completed in December 2014. PKSF achieved all the outputs of the project and in some cases exceeded the targets. This has been realized by PKSF that addressing risk mitigation needs of the poor is very important for poverty reduction. Insurance services for the poor have been deemed as a viable risk management solution for safeguard their lives and livelihoods from various perils. Based on the result and knowledge gained from the pilot testing, PKSF will sincerely look forward to improve access to affordable and poor-friendly insurance services with the view to reducing vulnerability of poor and low-income households across the country.