Six years ago David Patient felt his immune system slipping. He had been HIV-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. Patient was working for one of the biggest insurance companies in South Africa on an AIDS awareness programme, but it wouldn’t insure him, and neither would any other company. Then his doctor mentioned a brand-new possibility: AllLife, established to insure only HIV-positive people. Patient bought a policy that upon his death will pay his partner a half-million rand, the equivalent of Rs 34 lakh.
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. Computers track clients’ medical progress and provide reminders to get blood tests or visit the doctor. Staff members call each client once a month. Ross Beerman, AllLife’s managing director, says that clients average a 15 per cent improvement in their CD4 count – an immune system marker – six months after buying insurance.
Insurance is a peculiar product, unavailable to those who need it most. Poor people need insurance more than wealthier people do, because they have no other cushion. 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. India’s health ministry found that a quarter of all people hospitalised were pushed into poverty by their hospital costs — not including the cost of missed work.
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, which helps scale up microinsurance companies. Also, 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 mobile banking and the infrastructure created by microcredit institutions. These both reach the poor and drive down the cost. In the last five years, the number of people who have microinsurance has increased by a factor of 6.5, according to the International Labour Organisation. That’s half a billion people.
In 2005, only seven of the 50 largest insurance companies in the world offered microinsurance. Now 33 of the 50 do. 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 three billion policies. And life insurance is likely to be only a small part of the market. MicroEnsure, a London-based organisation 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.
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 second-hand trucks — their low-income buyers had invariably been rejected by conventional banks. It also runs chit funds. Shriram branched out, and now targets people making about a lakh 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 per cent 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. What drives many people to contact AllLife is that banks require life insurance for any sort of loan. That has effectively meant that anyone with HIV – some 18 per cent of South Africa’s adult population –is shut out of much of the normal economy. One happy side effect: its impact on the stigma of AIDS. “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.”
©2012 The New York Times News Service