Emerging Insight #64

Insurance helps clients reduce (but, not avoid) using stressful informal coping strategies

The Microinsurance Learning and Knowledge (MILK) Project and the Microinsurance Innovation Facility partnered with the Haitian microfinance institution Fonkoze to assess how and whether Fonkoze’s property insurance product added value in the lives of clients as compared to informal risk management mechanisms.

Results of two client value assessment tools, Client Math and PACE, show that after suffering losses, both the insured and uninsured relied relatively heavily on savings, asset sales, income, and informal loans to finance the shock. While selling assets was a common financing strategy, the uninsured sold substantially more assets than the insured, depleting savings to stay afloat, thereby experiencing greater negative consequences on their long term financial wellbeing. The insured, by contrast, were more likely to reduce consumption in the short-term while waiting for the insurance benefit than to sell assets, resulting in an improved long-term financial outlook.

Paying claims more quickly could reduce the need for clients to resort to less efficient informal coping strategies. Fonkoze has already worked to reduce the turnaround time for claims by revising damage evaluation forms, using 3G devices to send damage evaluations directly from the field, and giving center chiefs more authority to determine final payouts after major disasters (with random audits to control fraud). Despite these improvements, claims processing took on average 42 days in 2012, forcing clients to turn to other financing mechanisms to meet short-term needs. Advising clients about the expected date of payment, and exploring new technologies and process improvements to speed claims payment could further improve the client value of the product.