MiCRO: Frequently Asked Questions
What is natural catastrophe microinsurance?
Unexpected shocks from natural hazards can affect vulnerable low-income individuals and force them to cope with losses by selling assets. Microinsurance is a type of insurance product that helps low-income individuals manage their risks. The word “micro” refers to the relatively small premiums or transaction size, since low-income people often need smaller or more targeted policies than what traditional insurance plans can offer.
What is MiCRO?
The Microinsurance Catastrophe Risk Organization (MiCRO) is a specialty reinsurance company that works with key partners to provide index-based business interruption insurance to low-income populations. We bridge the divide between the world’s insurance markets and the most vulnerable populations, overcoming barriers that keep low-income populations, including smallholder farmers and microentrepreneurs, from accessing the risk protection that they need, at a price they can afford.
What is index-based microinsurance?
Index-based microinsurance is an innovative form of insurance designed to protect low-income individuals against risks, such as catastrophic weather or earthquake events. Unlike traditional insurance, where losses are verified by an insurance adjuster on a case by case basis, index-based insurance uses predetermined indices (e.g. rainfall levels) that trigger an automatic payment to all insured clients within a geographic region. This approach has helped make it commercially feasible to expand the reach of insurance policies to low-income individuals in areas that might once have been considered uninsurable.
How does index-based insurance work?
Advances in technology and data analysis over the last decade have made index-based insurance even more feasible. Satellite surveillance, for example, can be used to identify the amount of rainfall within a one kilometer square area of land over a specific period of time. Such data are then compared against historical averages to design payout triggers. Policyholders are compensated according to the strength of the measured event against those triggers.
What are the benefits of index-based insurance?
By making payouts automatic, based on external data sources, index-based insurance keeps premium costs affordable for low-income customers. Additionally, this type of coverage provides policy-holders fast relief after a catastrophic event, without having to wait for an insurance adjuster to personally verify their claims.
What are the drawbacks of index-based insurance?
One drawback of index-based insurance is the imperfect correlation between a policyholder’s loss and the specific data source on which the insurance product is based. It is possible that an individual could suffer losses but not receive a payout because the index does not reach the required threshold to trigger. For example, if a policy is set to pay out for an earthquake of magnitude 7 or above, but an earthquake only registers 6.9 magnitude, a client may experience damage that is not covered by the policy. On the other hand, individuals could also receive payments that surpass the value of their losses.
While such imperfections cannot be eliminated entirely, a carefully design index-based insurance product should maximize its value to the insured population, while still being commercially sustainable.
Is index-based microinsurance common in the developing world?
Index-based microinsurance is becoming more common in the developing world, though it is still a relatively new approach. Even ten years ago, such products would not have been feasible, but the improvement of satellite technology and data analysis has made this type of coverage possible. Relative to the overall global insurance market, index-based insurance represents a very small proportion of total policies.
When was MiCRO founded?
MiCRO was founded in 2011 by Mercy Corps and Fonkoze, a microfinance institution based in Haiti. In the wake of two events that devastated Haiti: a series of tropical storms in 2008, and the 2010 earthquake, which killed tens of thousands of people. MiCRO’s first catastrophe insurance products were offered through Fonkoze, one of Haiti’s largest and most well-known microfinance institutions.
What was MiCRO’s experience in Haiti?
From 2011 to 2013 MiCRO provided coverage for the property and merchandise of nearly 65,000 microfinance clients of Fonkoze, one of Haiti’s largest and most well-known microfinance institutions.
Following Hurricane Sandy and Tropical Storm Isaac, more than 36,500 claims were paid out, totaling USD $8.8 million.
Although the initial client product for Fonkoze suffered from sustainability challenges and is no longer being offered, MiCRO learned invaluable lessons that are currently being applied in its expansion into Central America.
How does MiCRO work?
MiCRO is a specialty reinsurance company that works to understand the needs of its potential customers and the risks to which they may be exposed. Using sophisticated data modelling, MiCRO develops index-based insurance products that are appropriate, affordable, and sustainable for customers in that market. In order to achieve scale, MiCRO works through local partners, such as microfinance institutions, that share its vision to provide insurance against natural hazards to low-income customers.
Who are MiCRO’s partners in Guatemala?
MiCRO is working with Banrural, a Guatemalan bank with extensive reach throughout the country, and Aseguradora Rural, an insurance company that is part of the Banrural group.
What kind of training does MiCRO provide to clients of its products?
MiCRO’s clients typically have not used insurance products before, so the company works closely with its aggregators and local insurance partners to provide information about how business interruption insurance works, and how their insurance policy covers specific catastrophic events. In addition, MiCRO working through government organizations such as CONRED, facilitates disaster risk reduction and preparedness training to its customers.
Who can purchase MiCRO’s products?
Since the launch of MiCRO’s first index-based insurance product in Guatemala, anyone who receives a new productive loan from Guatemala’s Banrural will be able to purchase MiCRO’s business interruption insurance product. The product is still in pilot phase and may be adjusted in mid-2017.
What catastrophic events are covered by micro’s new index-based insurance product in Guatemala?
MiCRO’s new index-based natural hazard insurance product in Guatemala is triggered when predetermined trigger levels for three different catastrophic events are reached: excessive rainfall, severe drought, and earthquakes. The payouts increase depending on the level of deviation of the corresponding index from historical averages.
The coverage for all three events is based on data produced either by NASA or the United States Geological Survey (USGS). Drought and extreme rainfall are based on satellite information from NASA, while the earthquake index uses ShakeMap, a USGS product. All the datasets are free and publicly available.
What is the market for MiCRO’s index-based business interruption insurance products in Central America?
MiCRO currently has one insurance product available, a catastrophic risk index insurance in Guatemala, the first of its kind in Central America. MiCRO hopes to enroll up to 5,000 people in Guatemala over the next 12 months. As it expands, MiCRO plans to roll out a similar type of insurance product in El Salvador and Honduras in 2017. By the end of 2019, MiCRO expects to have enrolled 250,000 policyholders across Central America.
How is the new index-based insurance product in Guatemala being offered?
MiCRO’s banking partner in Guatemala, Banrural, created two credit lines that bundle the index-based insurance coverage, one for microentrepreneurs and one for smallholder farmers.
How is MiCRO funded?
MiCRO’s business model currently depends on revenues from the insurance business, as well as grant funds. Because the company operates in a high risk, high potential space, grant funding allows the organization to make up-front investments in new products and markets. MiCRO’s expansion into Central America has been supported by local insurance companies and microfinance institutions, as well as by the Inter-American Development Bank, the Swiss Agency for Development and Cooperation, Swiss Re, and Mercy Corps. It is MiCRO’s intent in the future to engage with impact investors to increase the scale potential of its efforts.