As one of the least insured countries in the world, with insurance penetration as a percentage of GDP under 2%, Papua New Guinea has made micro-insurance a priority in order to help increase the uptake of policies. The public sector, insurers, donors and other parties have been working together to come up with solutions that could help to get more people insured. As in many countries, especially those in the Pacific region, micro-insurance is a challenge, and the exact way forward is still a work in progress. But the early results indicate that acceptance in PNG is high and that customers are amenable to being insured when the right products are made available to them, in the right way and at the right price.
History suggests that micro-insurance should be a difficult sell in PNG. Traditionally, people suffering the consequences of a natural disaster have first turned to the government, donors and NGOs for assistance. The local population has not been much exposed to institutions providing private, commercial cover, and there is even a lack of a basic understanding of what insurance is and how it works, according to participants at the 2015 Pacific Microfinance Week conference in the Solomon Islands. Transfer of risk is a concept unknown to most who are off the financial grid. Insurers also share responsibility for the lack of products. Underwriters have limited loss experience at the micro level and are often reluctant to start offering products outside of the conventional range. As so little coverage has been written in the region, data is also insufficient. “Insurers operate nearly blindly in the PNG market as the latest industry statistics were published in 2009,” Stefan Hansen, general manger of Tower Insurance, told OBG. “This would be unacceptable in a more mature market.”
The regulators play a major role as well. While they are interested in increasing financial inclusiveness, some are not necessarily convinced that micro products are the way to do it. Policymakers are often interested in bringing more people into the formal insurance sector rather than simply relying on the use of specialty products. While micro products have the potential to increase the absolute number of those insured, they provide less protection and may not always be commercially viable in the long run.
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Mobile technology is playing a major role in the introduction of micro-insurance products in remote areas and in developing countries, as it allows the insurers to reach customers far from urban centres and provides a low-cost payment platform. Good structuring is also important to getting policies into these markets.
Insurers at the microfinance conference said that pricing should be simple and premium payments flexible, so that the coverage can be adjusted if cash flows for an individual change. For the system to work, all stakeholders need to be competent and positive on the undertaking, according to a paper issued at the end of the conference. Participants also suggested that policymakers must be supportive, the distribution partner established and the underwriter familiar with the risks common in the Pacific region.
While micro-insurance is a challenge in the region – Fiji’s efforts to create micro-insurance products have not been all that successful – PNG has done relatively well. The country has proven to be a relatively easy place to sell micro products, as customers are flexible and readily willing to accept the bundling of services and insurance. At first, the concern in PNG was the wontok, the country’s traditional system of mutual community support, would stand in the way of micro-insurance uptake, as insurance would be seen as redundant. However, the demand was far higher than expected, and many customers have chosen to buy the premium product on offer rather than coverage at a lower level. Capital Insurance alone has underwritten more than 300,000 micro-insurance policies, according to the company’s 2015 annual report.
BIMA is the main driver of micro-insurance in PNG. Its first offering, Family Life, was introduced in July 2014. The product is a term life policy in which the premiums are deducted daily, and coverage ranges from PGK4000 ($1370) to PGK12,000 ($4100) while the premiums range from PGK0.18 ($0.06) to PGK0.54 ($0.18) per day, based on a 20-day month. The policy also pays out for permanent total disability.
The company’s second product, Hausik, was offered starting in March 2015 and is more health insurance than life insurance. Under the programme, cash is paid out for every day a person spends in the hospital, starting on the second day of hospitalisation. Payouts start at PGK32 ($10.92) per day and go as high as PGK96 ($32.77). Premiums range from PGK0.18 ($0.06) to PGK0.54 ($0.18) per day. The policy also has a life insurance component, which pays out lump sums ranging from PGK600 ($205) to PGK1800 ($614). Coverage is limited to 30 days in a 12-month period.
For both products, the underwriting process is simple. The policies are available to anyone aged 18-60. No physical examination is required, but the customers must declare that they are in good health. Pre-existing conditions are excluded, as are a list of certain events and ailments. The sign-up process can be handled by SMS, and the premiums are deducted daily from a customer’s mobile credit balance 20 times per month. A call centre is also available for people who would like to receive more information about the product.
In PNG the success of BIMA’s products has largely been attributed to cooperation so that a price point could be achieved that would be attractive to a wide range of customers, with mass uptake being essential to the model. BIMA has received considerable support locally and internationally. It policies are underwritten by Capital Life Insurance, one of the country’s leading insurers. In late 2014 Digicel Group announced that it was investing $5m in BIMA, and in July 2015 BIMA was able to raise an additional $38m from its investors, including LeapFrog Investments, Millicom and Kinnevik.
In early 2015 the UN’s Pacific Financial Inclusion Programme (PFIP) said it would also be investing in BIMA as well. With PFIP’s support, BIMA will expand into Mt Hagen, Lae and Medang. The presence in Mt Hagen will include training facilities and computer terminals where agents can check a customer’s account. The number of agents working in the region will also be increased. The PFIP is based in Suva, Fiji, managed by the UN Capital Development Fund and the UN Development Programme, and receives funding from Australia, the EU and New Zealand. The PFIP has set a target of getting 1m more people in the region integrated with the formal financial sector by 2019. As part of its Rural Economic Development Project, the EU is providing support to the PFIP in PNG. – specifically, by providing financial support to help farmers gain access to financial services in the Highlands.
Pacific MMI has its own a micro-insurance product, offered through Nationwide Microbank ( MiBank) in cooperation with the PFIP. The policy, which has been available since 2013 and is called MiLife, is straightforward term life or funeral cover that pays out PGK5000 ($1710) and costs PGK55 ($18.78) in one annual premium payment. The system utilises the bank’s mobile money platform, allowing payments to be made in rural and remote areas of the country. MiBank was founded in 2004 with the help of the Asian Development Bank, Australia and the government of PNG. The bank currently has 12 branches around the country and over 162,000 depositors.
Micro-insurance in PNG has faced a number of problems. False claims are often filed and churn is also said to be high, though that may be the consequence of people losing phones or changing their numbers. However, it is off to a strong start just three years after the first product was introduced, and the results are encouraging.
Crop insurance is the next micro-insurance product being considered for PNG. These policies are often a challenge, as pricing is difficult and the premiums are often too high for farmers. As with all micro-insurance, the goal is to create a pool large enough to make the product viable for all the stakeholders in the segment, and that is both a matter of structuring and education. The best model so far, and the one that has generated the most interest, is that in which policies are sold without individual underwriting and in which the pay out is based on an index that reflects weather conditions or agricultural performance. “There is a lot of interest in index-linked insurance,” Philip Tolley, managing director of Capital Insurance, told OBG.