Micro insurance, Part 2: An outstanding example of innovation
Cedric Stephens Insurance Helpline
QUESTION: One of my friends spoke with me about micro insurance a few weeks ago. I am not too sure that he properly explained it. What do you know about the subject? Is it something that should be considered for local consumers? How does it work?
A.L., Morant Bay PO, St Thomas.
HELPLINE: The starting point for today's article - the second in a two-part series - is Health Minister Dr Fenton Ferguson's nationwide broadcast on the chikungungya virus (chik-V). According to this newspaper, he admitted that while "the Government has been leading the efforts to reduce the spread of the disease ... the fight to contain it has to become the personal responsibility of every citizen".
In another address a few days later, according to another daily, he made similar remarks. "The importance of individual responsibility (of citizens) to get rid of mosquito-breeding sites in their environment" was an important part of prevention.
Those two statements, in the context of the International Monetary Fund agreement, confirm one of the key points that were made in Part 1 of this article: "GOJ is quietly divesting its social insurance function." Citizens, who bear the direct and indirect costs of chik-V, are also expected to shoulder the expenses of getting "rid of the mosquito-breeding sites in their environment."
The increasing role that citizens are being asked to bear in protecting themselves and their families against risks and the declining levels of government assistance underscore the growing demand for micro insurance products. The three products that were introduced by a leading non-life local insurer last year should examined within a broad socio-economic context.
Product No. 1 - Accidental Medical Coverage: Benefits under this coverage are triggered by accidents. The accidents must result in "bodily injury (not due to an illness/disease) for which medical attention was received, and/or death. An accident, according to the brochure, is defined as an event that is "unexpected, unplanned and outside of one's control."
The maximum amounts that will be reimbursed - subject to confirmation by a medical doctor - per policy/per section/per year for medical expenses, will be $200,000 as follows:
Regular consultation: $20,000
Specialist consultation: $30,000
Hospital expenses: $20,000
Radiology (MRI. CT Scan, X-ray, Ultrasound): $30,000
The benefit payable on death to a named beneficiary will be $100,000.
Policyholders have the option of paying the premium every two weeks - $300; monthly - $500; or annually - $4,500. There is a 60-day waiting period before claims can be made.
Fewer than 20 per cent of the local population has health insurance.
In spite of the fact that most hospitals are largely funded by the Government, patients are increasingly being required to fund part of the charges in the form of user fees. These charges can amount to thousands of dollars.
A Harvard Medical School study according to Reuters news, estimated that about 45,000 persons in the United States die each year due to lack of health insurance. Insurance funds most of the health-care costs in that country and hospitals for the most part are privately run.
Product No. 2 - Utility Bill Protection Coverage: This product is, in some respects, similar to Product No. 1. It is triggered by ill health or disability. In other ways, it is very different.
First, the product is bundled or 'married' to services offered by a bill payment company. It is not sold as a standalone product. Second, the premium is paid by the bill payment company. Third, the benefits are paid directly to Jamaica Public Service Company and to the National Water Commission.
Disability is defined as "any medically-certified impairment as a result of accidental injury that interferes with the policyholder's ability to perform his daily job functions, including broken limbs; major cuts and lacerations; vision loss or impairment; dismemberment; and ligament or muscular injury".
Would chik-V qualify as a medically certified impairment? Even though I have not looked at the policy, I seriously doubt so.
By signing up for this service, the bill payment company undertakes to pay the lesser of "the average of the current charges on the last three JPS or NWC bills or the average of the three months' payment made on the JPS or NWC bills immediately prior to the claims event date".
Product No. 3 - Livelihood Protection Insurance: This is, in my opinion, the most innovative of the three products. It is offered exclusively to members of the National People's Cooperative Bank and the St Thomas Credit Union.
Members who are farmers, market vendors, informal traders or who are otherwise self-employed can protect their income, referred to as 'livelihood', against the effects of harsh weather events which disrupt their ability to earn, repay loans and take care of day-to-day expenses.
Harsh weather events are defined as heavy rain or high winds over certain thresholds, or triggers. The four wind triggers are summarised in Table I.
There are separate rainfall triggers for each parish. The triggers (in millimetres within 24 hours) and the payout rates for nine of the 14 parishes are set out in Table II:
Coverage can be purchased in increments starting from as low as $50,000 to as high as $500,000. The annual premium, which can also be paid monthly or weekly, and the selected policy payouts, depending on the trigger level, are summarised in Table III.
There are several features of this coverage which are very different from a traditional insurance policy. Some of these are:
1. It is most unlikely that disputes will ever arise about whether the coverage was triggered and which trigger level was attained since data from the Tropical Rainfall Measuring Mission and the National Hurricane Centre will be used.
2. Once the trigger level has been met the appropriate amount will be deposited to the bank account within 30 days of the weather event without the beneficiary having to file a claim.
3. Everyone who owns a policy in the parish(es) that is affected by the weather event will be sent a text message saying that the trigger level was met and what level and amount of pay-out that they will receive.
The OAS estimates the average annual costs of natural disasters in Latin America and the Caribbean at 6,000 lives lost, adverse effects on three million people and US1.8 billion in physical and economic damage.
The Livelihood Protection Insurance will go some way in helping to protect members of the groups in Jamaica to which it targeted against future disasters as well as help to reduce some of the impacts of climate change. Congratulations are due to JIIC and its partners.
Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: email@example.com.