As consumers, we rely on a sometimes bewildering array of certifications and quality assurance standards from fair trade to organic, from ethical fashion to sustainable timber. We want to be sure that we’re getting value for money and a certain level of quality.
Yet when it comes to complex, technically sophisticated and intangible products like index insurance, evaluating quality is a much tougher call. In some cases, consumers simply don’t know what they are buying, whether it represents value for money or has passed any kind of quality threshold. Faced with this challenge, the recent MiN Expert Forum Do no harm: the argument for quality standards and certification of index-based insurance explored how product certification could help scale up inclusive insurance in emerging markets.
“Low quality insurance can make smallholder farmers on average worse off than if they had no insurance at all,” Tara Chiu, Associate Director at the Feed the Future Innovation Lab for Markets, Risk and Resilience, told members. “There is no real way for farmers to tell the difference between a contract that offers real value from one that doesn’t. They are disadvantaged because they don’t have the information they need to decide if a product will be good for them.”
“Part of the problem is that the quality of a contract is a hidden trait,” explained Lab Director Michael R Carter. “It’s not unusual to have products in the market where it’s difficult for the consumer to figure out the quality. This is where certification or regulation is a really useful response. There’s a recognition that when quality is hidden there’s a real economic and business logic for certification of quality.”
“Public investment in low-quality products is an ineffective use of limited resources, and low quality products can drive out high quality products,” added Tara. “Contract failures stifle the market and can tarnish the reputations of all the organisations involved. High profile failures have stalled momentum around an otherwise promising tool, and the current lack of consistent quality control makes investment in agricultural insurance a high risk, high reward activity.”
From the earliest days of microinsurance, there was a recognition that a set of KPIs was needed to measure the financial and social performance of microinsurance products. Attempts to define “what good looks like” include the MiN’s Social Performance Indicators and the ILO’s Impact Insurance Facility PACE tool, which evaluates value across four dimensions: Product, Access, Cost and Experience. PACE has been recently used by the MiN Best Practice Group (BPG) on Health and Financial Inclusion to assess the quality and value of hospital cash products.
“PACE allows practitioners to identify, consolidate, and then prioritise potential changes in both the product and the process,” says ILO Senior Technical Officer Pranav Prashad. “Looking at both these aspects is critical, as often the problem with inclusive insurance schemes is that processes to enable access or to service claims are weak and thereby undermine the value of the products.”
“The certification of insurance products is directly linked to the need for understanding and improving the value that customers derive from these products,” he adds. “Certification can help improve and standardise the processes, leading to time and cost efficiencies and the overall sustainability of insurance operations.”
The joint ADA and BRS Microfact initiative enables microfinance institutions (MFIs) and microinsurance providers to evaluate the performance of their products with the ultimate aim of raising quality and value for clients. In the case of insurance, this involves assessing whether their products and services make sense for their clients and are providing value for the premiums paid. Meanwhile, the Global Impact Investing Network (GIIN) platform aims to provide impact investors — including those investing in inclusive insurance — with tools and resources for impact measurement and management (IMM) so they can “allocate capital to fund solutions to the world's most intractable challenges.”
However, campaigners argue that there is a need for a simple, robust quality certification system to boost consumer confidence that the insurance purchased will deliver on its promise to provide cover when an adverse event occurs. That’s where Minimum Quality Standard (MQS) and Quality Index Insurance Certification (QUIIC) come in. Developed by Feed the Future Innovation Lab and the Kenya-based Regional Center for Mapping of Resources for Development (RCMRD), with support from USAID, QUIIC aims to ensure that “an index insurance product will, at a minimum, not leave a family worse off.”
For the past two years, QUICC has been tested in Uganda under a pilot using government-subsidised premiums. As Munyaradzi Daka, Technical Manager at the Agricultural Insurance Consortium of the Uganda Insurers Association, told the Expert Forum, “We believe that certification is the only way we can get integrity into the products we are offering. Consumers do not forgive you if you come with a product and it doesn’t perform without any reasonable explanation.”
So impressed has the Ugandan government been with QUICC that phase two of the project is now being rolled out. “We want to ensure consumer protection,” said Musa Lukwago, Senior Economist with the Ministry of Finance Planning and Economic Development. “We want to make sure there is value for money. We have to make sure there is some sort of certification in place, to ensure that whatever is being put on the market is good for the people. The government cannot put money into uncertified products.”
QUICC is by no means the only initiative gaining attention. Building on lessons learned from the Smart Campaign for financial inclusion, the Microinsurance Network has been exploring the idea of an InsureSMART campaign intended to improve the quality of insurance services targeting low-income households and vulnerable MSMEs. Insurance and InsurTech service providers would be encouraged to submit their products for evaluation using a standard tool such as PACE. As MiN CEO Katharine Pulvermacher notes, “there is currently no standardised, publicly-available approach to monitoring the quality of either the increasing number of microinsurance products or InsurTech platforms.”
Swiss Capacity Building Facility (SCBF) CEO Sitara Merchant, who has extensive experience in the microfinance sector, adds that certification is not straightforward. “Smart Campaign certification created huge value for inclusive finance, but the digital financial services world is less interested in certification,” she says. “For insurance certification to be successful, it is important to understand the reasons for this and incorporate lessons learnt from the Smart Campaign. Insurance certification would need to be internationally recognised and have tangible benefits to the insurance supply side, as well as buy-in and endorsement from investors, donors and other stakeholders in the insurance ecosystem.”
Aware of the need to balance scale and sustainability, the MiN would like to hear your views on quality certification and how it might work for the microinsurance sector. As the first steps towards a labelling scheme, we propose developing a Charter of Values, co-created with and endorsed by our members. In the short term, we wish to gauge interest prior to creating a task force to develop the Charter.
But none of this will happen without you! So please share your views and experiences of certification - good or bad - and how we could learn from other standards and quality assurance schemes. As the ILO’s Pranav Prashad points out: “Quality standards are an outcome of the desire to move away from the never-ending discussion about basis risk by attempting to minimise and ensure that products do no harm — in other words, making sure they actually pay out in times of need!”