Protecting lives and livelihoods through remittance-linked insurance

Thursday, February 18, 2021

When Dahlan broke his leg in an accident after work, it spelled disaster. As a Nepalese migrant working in Kuala Lumpur, Malaysia, he wasn’t covered by the mandatory compensation scheme outside working hours. Dahlan had to pay out 300 RM (€60) for treatment and lost six weeks’ wages - about 2,500 RM (€500). But his biggest problem was that he couldn’t send any money home to his family. Along with most of his fellow migrant workers, he normally remitted between 70 and 90 percent of his salary home each month. Dahlan’s loss of income was not only a blow to him, but to his family back home as well.

“The moment that migrants can’t send money is really very difficult,” Democrance Founder and CEO Michele Grosso told the session on Insurance from a distance: Using remittances to increase protection at the Digital ICII last year. “Their families really depend on them…[so] this risk is really top of mind.”

The International Labor Organization (ILO) estimates there are around 164 million migrant workers worldwide at any one time. At their peak in 2019, global remittances to low- and middle-income countries were worth US$550 billion, and although the Covid-19 pandemic reduced that by around 7.2 percent in 2020 and is predicted have a similar impact in 2021, it’s likely the figure will rise again once the global economy starts picking up.

Wherever there are migrants, there are remittances - and that means insurable risks and opportunities for inclusive insurance providers. The remittance itself can be insured in case it goes missing, but perhaps more importantly, insurance can manage risks for both migrant workers and their families back home. A 2020 Cenfri study suggests that 21 percent of migrant workers surveyed already send money back home for insurance purposes and 84 percent for health purposes, which is an insurable risk.

We tend to think of remittances in terms of formal channels such as money transfers and mobile operators, but many migrants use informal mechanisms which could be as simple as trusting a bus driver to deliver an envelope of cash. Some companies, such as Mukuru in Zimbabwe, have recognised that remitting money - especially to a country with unpredictably high inflation - may not be the best way to help family back home. Migrant workers in South Africa, Malawi, Zambia, Zimbabwe or Botswana can instead send an online grocery pack.

Whatever the channel, there are risks, and these come on top of the personal health and unemployment risks faced by migrant workers at the best of times. “Migrants are suffering greater health risks and unemployment during this crisis,” says Dilip Ratha, lead author of a recent briefing on remittance flows and head of KNOMAD, the Global Knowledge Partnership on Migration and Development. “The underlying fundamentals driving remittances are weak and this is not the time to take our eyes off the downside risks to the remittance lifelines.”

The need therefore to protect livelihoods and guard against risks for both senders and receivers has never been greater. For migrant workers there are clear benefits to low-cost insurance - both for themselves and their families - and new insurance products are starting to meet the need. Last year in the UAE, Democrance and AXA launched Hello Protect, a personal accident insurance scheme for customers of the international money transfer service Hello Paisa. UAE residents remitting money to their home countries get free accident and disability cover. In Ghana, PayAngel Money Transfer has partnered with Allianz to introduce the RemitCare Plan, which provides free life insurance cover for beneficiaries back home when Ghanaians working abroad use PayAngel to send remittances. 

The recent MiN Expert Forum Unlocking insurance through remittances, brought Dilip Ratha and Michele Grosso together with Gideon Ataraire, CEO of Allianz Life in Ghana, in a discussion moderated by Matthew Genazzini, Senior Project Officer at ADA. Recognising that digital technology is key to providing migrant workers with accessible, low-cost insurance products linked to mobile money transfers, Democrance and ADA, together with the International Fund for Agricultural Development (IFAD), are helping migrant workers protect the income and activities of their family members back home.

Laarni Capuz, a Filipino working in the UAE, is one of those to benefit. “I’m very happy that I'm covered by this insurance, especially in these uncertain times,” she says in a video released by ADA. “We don’t know what’s going to happen so it’s very important we send money regularly to our loved ones in the Philippines. They don’t have to worry about me, I’m safe and protected by the insurance, and I’ll be sending money regularly.”

Even with more insurance products aimed at managing remittance risks coming onto the market, customer education remains a considerable challenge. “The problem is not the insurance part but the ability to educate and engage with the clients during the distribution of them,” says Ricardo Arroya of AXA Gulf. “Educating the clients about this type of insurance is key.”

In some markets, additional barriers to linking insurance and remittances arise because of the high cost of money transfers. The ‘big three’ companies - TransferWise, Western Union and MoneyGram - face revenue falls caused by the Covid-19 pandemic and there are calls for them to lower their fees to help migrants support their families back home. Remittance fees range between three and seven percent per transaction, but traditional money transfer services in prominent remittance destinations, such as Jamaica have faced pressure to cut rates and increased competition from mobile operators.

Marvin Lutaya, a Ugandan working in UAE, is an insurance convert. “The funds I send home are used to pay for my sister’s education as well as support my sick mum and elderly dad,” says Marvin. “That’s a lot of responsibility for me. The fact that I have insurance, I’m at ease, I’m at peace. Life moves on smoothly!”