The COVID-19 pandemic highlights the vulnerability of informal workers who face the dilemma of choosing between health and money, particularly in countries with weak social safety nets. The MiN’s first Expert Forum to be held in Spanish discussed the challenges and explored possible opportunities and solutions in the LAC region. The session aimed to identify unprotected workers and the sectors they work in, and to answer their dilemma of having to choose between health and income. In response, the experts explained how insurers can help low-income informal workers by offering affordable, accessible products which cover loss of profits or loss of earnings.
“We are in a process of ‘enforced’ financial education on the part of low-income people,” said Maximiliano Selva, Commercial Partner at Varese Brokers in Argentina. “COVID-19 has forced citizens to use digital wallets and electronic payments to buy products and services. This is an opportunity for the financial and insurance sector to find practical solutions to mitigate the impact of the crisis on family finances which we must not miss.”
The coronavirus may be new, but it shines a spotlight on an old problem - the enormous wealth and social gaps that exist in many countries. Moderator Alice Merry, a Peru-based consultant specialising in microinsurance, explained that the informal sector is very large in Latin America as it includes not only self-employed informal workers, but also employees of local informal enterprises. Although many countries provide an acceptable level of universal health coverage, she said, most people's income is only guaranteed as long as they keep working. Every day that passes in lockdown is one less day of income and one more day of expenses, forcing people to choose between staying at home and taking care of their health, or going out to earn money.
Edwin Vargas, Executive Director of Fundación PROFIN, explained that in Bolivia, as in most countries in the region, only 20 percent of workers - those in the formal sector - have any form of income security while in lockdown. The remaining 80 percent are self-employed or work informally in micro, small or medium enterprises (MSMEs), living from day to day. They tend to be less connected and have low health insurance cover. In Bolivia, 100,000 MSMEs need help, a further 500,000 are at risk and four million people need financial support - out of a working population of just 5.2 million.
“The challenge facing Latin American countries is to deploy initiatives to counteract the effects of the current crisis, allowing them to return to the pre-pandemic situation,” said Edwin. “For example, given that employment and access to health services could be reduced in the short term due to business closures and low insurance penetration, the Bolivian government has put measures in place to ensure business continuity and ensure wages and benefits get paid. But it’s hard to evaluate how effective they will be in reaching the right people at scale. On the other hand, not deploying them could lead to a growth in informal, insecure, low-income jobs which increase poverty levels.”
It’s a similar story in Colombia, said Alejandra Díaz, Head of Growth at Microinsurance Catastrophe Risk Organisation (MiCRO). Eighty-six percent of self-employed workers in Colombia are in the informal sector, and 69 percent of informal workers are poor and vulnerable, she said. Although the pandemic has hit the insurance industry hard, it has also created an opportunity to learn new lessons for product development. “Parametric insurance is one possible solution to cover the income of informal workers in a pandemic situation,” she said. “Advantages include the possibility to expand insurance in populations and regions not previously served; protection against collective risks; and allowing freelancers to cover a drop in earnings. In addition, parametric insurance is more affordable and doesn’t require claims or loss adjustment, meaning payouts can be quicker and simpler. Adverse selection and risk are minimised as payment is based on an objective index.”
However, Alejandra underlined the significant challenges for the design and implementation of parametric insurance, including the lack of robust, reliable historical data to allow accurate pricing; finding reliable reporting agencies, minimising the base risk; achieving sufficient scale to ensure product sustainability; and the availability of risk capital. Despite these challenges, she called on insurers to step up efforts to develop innovative insurance for informal workers, both to boost access to health services and to compensate for the loss of income from business interruption.
Maximiliano Selva said any new microinsurance products must be sustainable, client-focused, profitable, have international support, and easy to access and pay for. He presented three initiatives in the pipeline which could be replicated elsewhere:
- a policy aimed at around 1.8 million domestic workers in Argentina which provides compensation for a number of days each year lost to specific causes including a pandemic;
- health, breakdown and lost earnings cover for around 150,000 home delivery riders and drivers who have no insurance or social benefits - premiums could be either individual or shared payment with the company;
- and insurance for 150 street vendors across Latin America, including health and loss of earnings for specific reasons
“There are a lot of commonalities across Latin America,” said Maximiliano. “It makes sense for insurers to work regionally in the design of these products. We also need public-private partnerships which create incentives for product development, subsidies for the client, state support and international reinsurance.” He added that digital platforms and products are a must to allow underserved, low-income populations to access insurance.