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Third-party payment mechanisms in health microinsurance: Practical tips and solutions

Le Roy; Pascale, Jeanna Holtz, Paper N° 13, ILO, October 2011

The third-party payment (TPP) mechanism is a model where insured patients are not required to pay the cost of health services covered by the insurance at the time the services are rendered. While the TTP, or "cashless" mechanism is not new in health insurance, setting up and managing a TPP mechanism for a health microinsurance scheme presents unique challenges.

This paper, published by the ILO's Microinsurance Innovation Facility, draws on the experience of various health microinsurance schemes and presents the pros and cons of using a TPP mechanism. It also presents key issues to address when establishing and managing a TPP mechanism, as well as tips and solutions collected from cases studies and experts' interviews.

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Financing Disaster Management in India: Possible Innovations

Clemence, Raghuram, Alok, Anupama, Mangesh, Priya, Rupalee, Javed, Centre for Insurance and Risk Management (CIRM), 2011

This paper analyses the current funding mechanism to finance disaster management in India. It looks at the drawbacks of the current system which is more focused on ex-post strategies. The paper then looks at possible ex-ante strategies that can strengthen the current mechanism, and provides relevant examples of other countries using such instruments.

It also highlights the importance of a domestic insurance market, challenges of domestic insurance markets and makes suggestions on the possible features of a domestic insurance market that can be created in India.

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Reinsuring the Poor: Group Microinsurance Design and Costly State Verification

Clark, Daniel; University of Oxford, October 2011

This paper analyses collusion-proof multilateral insurance contracts between a risk neutral insurer and multiple risk averse agents in an environment of asymmetric costly state verification. Optimal contracts involve the group of agents pooling uncertainty and the insurer acting as reinsurer to the group, auditing and paying a claim only when the group or a sub-group has incurred a large enough aggregate loss.

The paper interprets the models as providing support for insurance contracts between insurance providers, such as microinsurers or governments, and groups of individuals who have access to cheap information about each other, such as extended families or members of close-knit communities. Such formal contracts complement, and could even crowd in, cheap nonmarket insurance arrangements.

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Weather Index-based Insurance in Agricultural Development: A Technical Guide

William Dick, Andrea Stoppa, Jamie Anderson, Emily Coleman, Francesco Rispoli, IFAD & WFP, November 2011

The International Fund for Agricultural Development (IFAD) and the World Food Programme (WFP) have been working together on weather index-based insurance since 2008 through the joint Weather Risk Management Facility (WRMF). This newly published technical guide translates the findings and experience to date into practical decision-making steps for donors and practitioners.

Weather Index-based Insurance in Agricultural Development: A Technical Guide

It goes through each phase of the weather index-based insurance project design and management process, including:

  • Assessing if index-based insurance is feasible;
  • Developing a roadmap for pilot and implementation;
  • Scaling up and sustaining weather index-based insurance;
  • The guide includes background information, explanations and resource recommendations to help inform decision-making.

It illustrates how weather index-based insurance operates best as part of an integrated approach to risk management, when constraints such as lack of access to finance, improved seed, inputs and markets can be simultaneously addressed.

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Weather Index Insurance for Agriculture: Guidance for Development Practitioners

The World Bank, November 2011

The guidance paper provides an introduction for project managers, donors and development professionals who are not insurance sector specialists, to the advantages, challenges and implications of implementing weather index insurance programmes.

This practical tool, written by the Agricultural Risk Management Team (ARMT) of the World Bank, is the result of almost eight years of efforts researching, developing and implementing weather index insurance pilot projects in developing countries.

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Four short microinsurance case studies

A series of four short case studies has been published by Milliman, a global insurance consultancy firm, on the following topics:

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Index-Based Microinsurance for Paddy Sector in Sri Lanka: An Evaluation of Demand Behaviour

Heenkenda, Shirantha, Nagoya University, Japan, 2011

This study examines the demand and applicability of an index-based microinsurance scheme (IBMS) for paddy crop, cultivated by small scale farmers in Sri Lanka. It aims to support the making of a more efficient and realistic pricing policy for IBMS. The study examines farmers’ willingness to join and their willingness to pay for the hypothetical index-based crop insurance scheme.

The study suggests a participatory approach to insurance design that involves farmers. It recommends that the insurance product should be designed and implemented with the synergies of different approaches. It also advocates linking farmer organisations to the insurance supply chain.

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Social Networks and Insurance Take-Up: Evidence from a Randomized Experiment in China

Jing Cai, Alain de Janvry, Elisabeth Sadoulet, Research Paper N°8, ILO, October 2011

This paper estimates the role of information in insurance take-up using data from a randomised experiment in rural China where information was either offered directly through financial education or accessed indirectly through social networks. Unlike previous studies, the experimental design allows to not only identify the causal effect of social networks, but also to differentiate the various channels through which they operate, including improvement of negotiating power, imitation, and social learning of insurance benefits.

The results show that social networks have a large and significant effect on insurance take-up decisions mainly driven by the social learning of insurance benefits. The policy implication is that offering financial education to a subset of households in a village community selected for their strong friendship links with others, their recognised farming skills, and leadership roles, and relying on social networks to extend its effect on more farmers through social learning, is an effective way of improving insurance take-up.

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Innovation Flash issue 11 available

The latest issue of the ILO's Microinsurance Innovation Facility newsletter includes an editorial from Dirk Reinhard (Munich Re Foundation) who reflects on how the microinsurance sector has in the past ten years slowly taken off and on what the next steps could be to increase both profitability and client's value.

The newsletter also highlights some Facility's new innovation grantees, presents the new thematic studies and publications of the Facility, and shares useful resources and opportunities.

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Changing Role of Family Networks in Coping with Risk

MILK Brief N°5, MicroInsurance Centre, 2011

Poor households use a variety of tools to cope with risk, including formal and informal savings, loans, risk-sharing, asset sales, and cash and in-kind transfers from family members, communities, governments, and NGOs. Traditionally, informal social networks at the family level have played a particularly significant role in helping the poor cope with risk.

This brief, published by MILK (Microinsurance Learning and Knowledge), examines the importance of family networks and ways in which recent demographic trends indicate a weakening of these networks and the emergence of new gaps in risk-coping ability, which formal insurance products may be able to fill.

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