The Microinsurance Revolution

Fixes looks at solutions to social problems and why they work.

Tags:

Africa, Health insurance, India, Life Insurance, Poverty

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.