Challenges facing micro-insurance development in developing counties

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CHALLENGES FACING MICRO-INSURANCE DEVELOPMENT IN DEVELOPING COUNTIES.

 

Abstract

 

This paper provide a current overview of microinsurance market in Tanzania, by examining the challenges facing the market for attaining sustainable development of microinsurance in the country. It has evaluating the insurance industry in the country, microinsurance development as well as the microinsurance regulation framework. The finding of this study shows that, the Tanzania insurance market is facing the absence of regulatory framework at present, lack of microinsurance exposure and risk data and low level of insurance awareness. Conclusively, the study suggest to reduce the communication gap (awareness), improve and employ microinsurance regulation and governance, and to employ public-private sharing cost.

 

Frank P. Kitende

 

 

  Table of Contents 
DECLARATION ....................................................................................................................................ii
CERTIFICATION. ................................................................................................................................iii
Abstract ....................................................................................................................................................i
Table of Contents ....................................................................................................................................ii
List of Tables and Box ............................................................................................................................v
List of Figures .........................................................................................................................................v
Acknowledgement .................................................................................................................................vi
Executive Summary ..............................................................................................................................vii
List of Abbreviations. ...........................................................................................................................viii
1.0 BACKGROUND INFORMATION .................................................................................................1
1.1Research context ...............................................................................................................................2
1.2Statement of the problems.................................................................................................................2
1.3Research questions ............................................................................................................................3
1.4The objective and aim of this study ..................................................................................................3
1.6Significance of this study, ................................................................................................................. 4
1.7 Justification of the study ...................................................................................................................5
CHAPTER TWO ....................................................................................................................................6
LITERATURE REVIEW .......................................................................................................................6
2.0Overview ...........................................................................................................................................6
2.3The Concepts of Microinsurance ......................................................................................................6
2.3.1Characteristics of microinsurance ..............................................................................................7
2.3.2Microinsurance Products and Distribution Models ....................................................................9
 Partner-Agent model; ......................................................................................................................9
 Direct sales model; ........................................................................................................................10
 Community-Based model: ............................................................................................................10
2.3.3Supply chain for microinsurance .............................................................................................10
2.4 Microinsurance vs. Traditional form of insurance ......................................................................11
2.5 Microinsurance vs. Microfinance ...............................................................................................13
2.6Regulatory Framework ...................................................................................................................13
2.6.1The Informality of Microinsurance. .........................................................................................15
2.6.2Insurance Supervision and Microinsurance .............................................................................17
2.7Conceptual frame work. ..................................................................................................................18
2.7.1Regulatory and supervisions ....................................................................................................19
2.7.2Demand and supply side. .........................................................................................................19
2.7.3Innovation and technology. ......................................................................................................20

 

Frank P. Kitende

 

 

2.8 Hypotheses of the study..................................................................................................... 20

 

CHAPTER THREE................................................................................................................... 21

 

3.0 METHODOLOGY.............................................................................................................. 21

 

3.1 Desktop research................................................................................................................ 21

 

3.1.1 Web search and libraries.............................................................................................. 21

 

3.1.2 Literature review and data............................................................................................ 21

 

CHAPTER FOUR..................................................................................................................... 23

 

4.0 Overview............................................................................................................................ 23

 

4.1 An Analysis of the Evaluation of Tanzania Insurance Industry...................................... 23

 

4.1.1 Tanzania Economy Profile....................................................................................... 23

 

4.1.2 The Tanzania Insurance Market................................................................................... 24

 

4.1.3 Evaluation of Tanzania Insurance Industry.................................................................. 25

 

The first phase; British Colonial era...................................................................................... 25

 

The second phase; After Tanganyika Independent.............................................................. 27

 

The third phase; Liberalisation of insurance market. 1996 to present.................................... 28

 

4.1.4 The Tanzania Insurance market growth........................................................................ 29

 

4.2 Tanzania Insurance Market Performance........................................................................ 31

 

4.2.1 General Insurance Performance................................................................................... 31

 

General insurance underwriting trend................................................................................. 31

 

General Insurance – Claim and Management Expenses trend.............................................. 33

 

4.2.2 Tanzania Insurance Market Underwriting Cycle........................................................... 34

 

4.2.3 The Insurance Industry contribution to the National Economy.................................... 35

 

4.2.4 Insurance Industry Investment..................................................................................... 36

 

Conclusion................................................................................................................................. 38

 

4.3 Microinsurance in Tanzania................................................................................................ 39

 

4.3.1 Insurable risks and challenges for microinsurance....................................................... 40

 

Life insurance,................................................................................................................... 41

 

Health insurance................................................................................................................ 42

 

Property products.............................................................................................................. 42

 

Agricultural insurance........................................................................................................ 42

 

4.3.2 Challenges and setback for microinsurance development in Tanzania......................... 43

 

4.4 Microinsurance framework................................................................................................. 44

 

CHAPTER FIVE....................................................................................................................... 46

 

5.0 CONCLUSION AND RECOMMENDATION..................................................................... 46

 

5.1 Conclusion of the finding............................................................................................... 46

 

5.1.1 Communications gap,............................................................................................... 46

 

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Frank P. Kitende 
5.1.2Regulation and Governance; ................................................................................................46
5.1.3Public – Private Sharing of Cost; .........................................................................................47
5.2Limitation of the study ................................................................................................................47
5.3Direction for the future research .................................................................................................48
REFERENCES .....................................................................................................................................49

 

 

of Tables and Box

 

Table 1: Supply chain of microinsurance.......................................................................... 11

 

Table 2. Microinsurance vs. Traditional Form of Insurance............................................... 12

 

Table 3: Summary of Insurance Companies Registration Position as at 31 December 2011         29

 

Table 4: Tanzania insurance market players trend............................................................. 30

 

Box 1, Informal Insurance in South Africa........................................................................ 15

 

Box 2. Kenya microinsurance........................................................................................... 17

 

 

 

 

 

List of Figures

 

Figure 1. Characteristics of microinsurance......................................................................... 8

 

Figure 2. Africa regulation framework status..................................................................... 16

 

Figure 3. Conceptual framework....................................................................................... 19

 

Figure 4. Tanzania insurance market growth...................................................................... 30

 

Figure 5; General Insurance product portfolio................................................................... 32

 

Figure 6; General Insurance growth trend.......................................................................... 33

 

Figure 7; General insurance expenses................................................................................ 34

 

Figure 8: Underwriting cycle.............................................................................................. 35

 

Figure 9: Insurance industry investment............................................................................ 37

 

Figure 10: Insurance industry employment trend............................................................... 38

 

Figure 11: Microinsurance percentage covered.................................................................. 40

 

Figure 12: Life insurance growth trend.............................................................................. 41

 

Frank P. Kitende

 

 

Acknowledgement

 

 

In undertaking this course of MSc Insurance and Risk Management at Cass Business School, I have received intellectual, financial and moral support from various people and organisation, whereby I wish to send my deep wholehearted appreciation to them. This course and my dissertation has become possible from the great guidance effort from my supervisor Dr. Cherie H. Chen, am very grateful for her support and constructive criticism which led to this brilliant final output report, in addition to that, I wish to register my appreciation to the course director Prof. Chris Person and Course coordinator Miss Sharon and other member of staff for their moral and information support during the whole time of my study at Cass Business School 2012/2013.

 

Secondly this study was made possible through the financial support covering tuition fee, accommodation and other cost which were covered and provided by my employer. Therefore I wish to send my gratitude to the management of the Institute of Finance Management (IFM) especially Prof. Godwin Mjema, and other few to be mentioned, Prof. Thadeo Satta, Prof. Isaya Jairo, for their moral, financial and administrative support during my course study.

 

Lastly, the person who is very important to me and deserve the most gratitude from my heart is my wife Aneth Godwin Natai. Definitely no amount of word I can say to express my comfort and inspiration I had during my studies due to her. She was very moral and even financial supportive throughout. Therefore I dedicate this report to her for the sacrifice she made since we marriage in 2012. However, I personally remain solely responsible for this work.

 

Frank P. Kitende

 

 

Executive Summary

 

 

The main purpose of this study ware to provide overview of the current state of microinsurance development in Tanzania. In which it has identified the key challenges of microinsurance in the country that deserve further researches. The study examine and explore key challenges for the development of microinsurance in the country. Whereby three objective were analysed for the study, evolution of Tanzania insurance industry, specific challenges for microinsurance in the country, and lastly was the regulation framework for microinsurance.

 

However due to time limit and other factor, the researching methodology used for this study has based on secondary information (desktop research), whereby it has involved the use of website, library, journal and other publications related materials fit for the purpose of the study. More than 50 publication has been reviewed and analysed in relation to the Tanzania insurance industry.

 

Chapter four gives the finding of this study questions, in which it provide the historical development of Tanzania insurance market from the colonial era to present as well gives the general trend of Tanzania insurance industry for the past 10 years. From TIRA’s reports it has shown that, the insurance industry has grown by 20 percent to TZS 344.7 billion in 2011 from TZS 287.0 billion in 2010, such growth its three time above the national GDP with average of 6.98 percent. Moreover the microinsurance has been growing at a pace rate, it also found that life insurance is a leading microinsurance product whereby in every microinsurance product provided it comprises life cover, and made the total number for microinsurance cover in the country to be amounted 3,278,400, equivalent to 7.3 percent from the total population.

 

The study has identified key challenges for microinsurance, mentioned as the absent of regulatory framework for microinsurance, lack of insurance exposure and microinsurance risk data, insufficient infrastructure and lastly, lack of insurance awareness to the public specifically low income-earners. However the regulatory framework has been in progress to be implemented in the near future by the insurance regulatory authority - TIRA, which will pave the way for sustainability of microinsurance in the country.

 

The conclusion of this study in chapter five which gives the key measure to be taken for sustainable development of microinsurance in the country, whereby knowledge gape, public-private partnership cost sharing as well as regulatory and governance are the key concerned for microinsurance development.

 

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List of Abbreviations.

AIO – The Africa Insurance Organisation

ATI – Association of Tanzania Insurers

BRI – Bank Rakyat Indonesia

CEAR – Georgia State University’s Centre for Economic Analysis of Risk GDP – Gross Domestic Product

GTZ – Tanzania German Programme to Support Health HMI – Health Microinsurance ICMIF – The Insurance Federation

IFM – Institute of Finance Management

IIT – Insurance Institute of Tanzania

ILO – International Labour Organisation

IMC – International Microinsurance Conferences IMF – International Monetary Fund

IRU –The Insurance Regulatory of Uganda

ISD – Insurance Supervision Department

MFI – Micro Finance Institution

MFW4A – Making Finance Work for Africa

MI – Micro Insurance

 

MKUKUTA – Poverty Eluviation Program (Mkakati wa Kupunguza Umaskini Tanzania)

 

MN – Microinsurance Network

 

NBC – Nation Bank of Commerce

 

NBS – National Bureau of Statistic (Tanzania)

 

NGO – Non Government Organisation

 

NIC – National Insurance Corporation

 

  • – Public-Private partnership TIB – Tanzania Insurance Brokers

 

TIRA – Tanzania Insurance Regulatory Authority TZS – Tanzania Shilling

 

Frank P. Kitende

 

 

UIA – The Uganda Insurers Association

 

WB – Word Bank

 

 

CHAPTER ONE

 

1.0 BACKGROUND INFORMATION

 

The introduction of microinsurance over the past decades since 1980’s and 1990’s, has made a great progress and has gain recognition in the developing community for providing number of benefits to the low-income earners population as well on insurance industry perspective for widening their coverage portfolio by accessing this untapped market, (Munich Re, 2012), furthermore, new market has been explored, and new products and operational strategies for microinsurance ware introduced. Numbers of the countries, including Tanzania, has started developing a regulative framework to enable the development of innovative microinsurance solution while assuring the protection of their customer1. However, microinsurance is still a nascent and complex industry since to give the involvement of many stakeholders such as microfinance and it operation it varies over different places and environments

 

Despite of the government and microfinance entity efforts made toward sustainable development of microinsurance and helping the poor community in Tanzania, microinsurance is at grass root level due to several setback, in which this has brought my intention and interest for this study to find out the most challenges for the development of microinsurance in Tanzania and to propose the best mechanism from supply side of microinsurance, which through several studies will speed the coverage for the poor2. Moreover, the 8th International Microinsurance Conference, was held in Tanzania from 6 – 8 November 2012, the conference was hosted by Munich Re and Microinsurance Network with the support of Tanzania Regulatory Authority (TIRA) and other bodies3, in which the Commissioner of Tanzania Insurance Regulatory Mr. Israel Kamuzora made the following remarks.

 

“…. Microinsurance in Tanzania is still at an infant stage, but we’re grapping to make it

 

effective and bring impact to low income earners in the country, …… We have a draft a

 

regulations which are specifically for microinsurance and it is fully operational which are set to start by January next year (2013), …… The ideal is to have a better strategy that will make

 

low income earner in urban and rural areas have access to micro insurance”4

 

  • See, The Landscape of Microinsurance in Africa 2012

 

 

  • The Association of Tanzania Insurers (ATI), GIZ/BMZ, Making Finance Work for Africa (MFW4A),The Africa Insurance Organisation (AIO), The Insurance Regulatory of Uganda (IRU), The Uganda Insurer Association (UIA),

 

Georgia State University’s Centre for Economic Analysis of Risk (CEAR), The Insurance Federation (ICMIF),

FinMark and the International Labour Organisation (ILO).

 

 

 

 

 

The main and fundamental agenda addressed in that conference was based on how to provide good value insurance products to low-income populations in Tanzania and the world at large, such as status of microinsurance regarding the success and failure of it in Tanzania as well as on how to provide sustainable agricultural insurance to low income earner (8th MIC report 201230).

 

1.1 Research context

 

Due to time framework and distance from this case study, the researcher has conducted the desktop research by finding more information on previously research, the researcher aim to address key setback for micrroinsurance in Tanzania informal sector, and analyse the efforts carries so far in Tanzania insurance industry for sustainability growth of microinsurance in the region. Several research has been carried regarding the challenges and bottleneck for widespread and sustainable provision for microinsurance in the deferent regions, example the supply side of product, where first is on developing and pricing microinsurance products5, where detailed suggestions on balancing inclusion, involvement of insurance professionals and professionalization for pricing model as well as sustainability of premium and benefit. The second challenges is based on institutional model and delivery channels6, the finding was the issue related to incentive contracts for agents (distributors), and institutionalization of models required.

 

1.2 Statement of the problems

 

Researches on microinsurance is still at an embryonic stage, which makes a rise in lots of questions and options to be applied before the solutions on how to protect significant numbers of the world’s poor against risk begin to emerge or increase (ILO 2008). However several studies has been carried for decades, finding the best mechanism for introduction of microinsurance, still a lots has to be done for effective and efficient coverage for the poor. Mapfumo (2006) highlight the importance of focus on the demand side (market) so as to develop a successful product, coupled with an iterating process of examining and operational and regulation environment plus the risk carrier. Dror et al. (2007) argued that, the Chat tool developed by microinsurance academy, deal with the coverage-premium trade-off by providing

 

 

 

 

  • See; Brown and Churchil (2000a), Wipf et al (2006), Wipf and Garand (2006), McCord et al. (2006), Churchill and Cohen (2006).

 

  • Fisher and Quereshi (2006), Leftley and Roth (2006), Radermacher and Dror (2006), McCord et al (2008)

 

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Frank P. Kitende

 

 

a menu of choice and letting the clients chose their desired coverage and corresponding premium.

 

Saqware N.A (2012), suggest that, the demand for microinsurance in Tanzania has not been affected or determined by the income level of the poor, rather the other factor such as gender, marital status, employment, use of financial service, education, risk exposure and insurance knowledge are the key determinant.

 

However microinsurance being a new insurance product, has been affected by number of various setbacks. From the Indonesia perspective, Young L (2011), suggest the main key challenges for microinsurance such as distribution/scales, developing appropriate product, easy to understand Government and regulations and claim settlement. These challenges automatically creates an urgent need to assess the Tanzania microinsurance market.

 

Despite of this evident importance on challenges in microinsurance, there is paucity of research based knowledge in the area (IIT, 2010). There is no empirical work evidence which examine the challenges for microinsurance on the supply side for the insurance market in Tanzania. Therefore this study explore effective mechanism for microinsurace distribution to both insurers, regulator, distributors and the donors at large.

 

1.3 Research questions

 

Generally this study examined the question ‘what are the key challenges and setback for the sustainable development of microinsurance in Tanzania?

 

Specific questions

 

This study has three specific questions;

 

  1. How did the insurance industry in Tanzania involved?

 

  1. What are setbacks for growth of microinsurance?

 

  • How does regulatory influence the sustainable development of microinsurance

 

1.4 The objective and aim of this study

 

The main objective of this study is to examine the key setback and efforts made so far for the sustainable development of microinsurance in Tanzania, whereby through understanding key setback will pave the way for both insurer, regulator, intermediaries (delivering channel) the better way of overcoming them through developing the desirable products with a viable distribution channels.

 

 

 

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Frank P. Kitende

 

 

Specific objective;

 

The specific objective of this study are threefold;

 

  1. To explore the evolution of Tanzania insurance industry

 

  1. To identify the key setback for sustainable development of microinsurance in Tanzania,

 

  • To assess the impact of regulation to sustainable development of microinsurance.

 

 

 

1.6 Significance of this study,

 

These three objective aim to provide knowledge on the trend of microinsurance in Tanzania, in which this study will benefit both of stakeholders involved directly and indirectly to the providing microinsurance to low income earner in Tanzania;

 

The Landscape of Microinsurance in Africa 2012, gives three key benefit for microinsurance research in the region as follow;

 

On the supply side of insurance which involve reinsurers, insurers and intermediaries, from this study they will understand the potential and the market size left untapped in the region, in which they will start to generate and involve themselves considerable on providing necessary products and vibrant distributions mechanism for these untapped market. Moreover the delivery channels (intermediaries) will also understand the whole concept of microinsurance, and much more to understand their position and influence to this market and how they will benefit from it.

 

Policy maker and regulator need to develop the more vibrant and practicable regulation framework for the available market and other stakeholders involves in place, so as to facilitate the growth for microinsurance and waive some of regulation which may hinder such growth, in which Tanzania regulations for microinsurace are in progress

 

Donor and sponsors, will have a better understanding of the level to which microinsurance has been reached in Tanzania, so as they will easy know how they can intervene and where to support for further sustainable development (the particular gaps).

 

 

 

 

 

 

 

 

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Frank P. Kitende

 

 

1.7 Justification of the study

 

There are several challenges facing the Tanzania insurance industry since independence which are not quite far different since from the time of insurance market liberalization in 1996 with a new insurance act or even before that7, which calls a needs for empirical studies so as to examine the Tanzania insurance market then to find solutions for such prevailed problems. Despite the Tanzania insurance industry has been growing three times of its GDP by 20.0 percent to TZS 344.7 billion in 2011 from TZS 287.0 billion in 2010, with a penetration of 0.8% and coverage of 7% of the population (TIRA, 2011), currently the Tanzania government is focusing on development of microinsurance as a key tool for achieving it national development Vision of 2025, and the strategy for growth and poverty alleviation MKUKUTA.

 

Therefore lack of insurance knowledge and awareness with among other problems facing the industry, not mentioned on the microinsurance perspective which it still at an infant stage with some challenges, this tile the need for assessing the microinsurance practise on its level of development and challenges faced by the market, so as to speed up its provision and coverage on the given numbers of population.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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