Deepening financing inclusion: The potential role of micro insurance in sanitation


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Deepening financing inclusion: The potential role of micro insurance in sanitation

"Deepening financial inclusion: the potential role of micro insurance in driving sanitation" is the third paper in the paper series. Even more than the first two papers, the theme of this paper “micro insurance and its role in sanitation” is a new topic.

Valentin Post (WASTE) & Vijay Athreye (Finish Society)
June 2016

India but also Sub Saharan African countries have a large population that is very poor. People at the bottom of the pyramid, in addition to other risks, have poor hygiene and other living conditions. These trigger a propensity to fall sick more often and with greater recovery costs and time. In other words, not only do low income classes have less money to pay for their illnesses, they also fall ill more frequently due to their living conditions. And because they mostly depend on daily wages with no medical paid leave, like those in the organized sector, the costs of falling sick are even higher as it would mean a wage loss in addition to treatment costs.

In the absence of a health care financing mechanism this implies costs in the form of medicines and loss of working time and income. Illness is a cause for defaults on (micro) loans. Thus this increases the lending risk for any financial institution. Now suppose that such people could borrow for safe sanitation, would there be financial institutions willing to issue these loans and if so at what cost? This we have described in the two earlier papers.

Now what if this borrowing and sanitation usage can be incentivised by offering a micro health insurance that rewards good behaviour (sanitation usage). This is of great interest to insurance companies as the number of claims is likely to come down and make it a more commercially viable proposition.

Given the size of the financially excluded communities, insurance companies would do well in looking at serving this underserved market with customised micro insurance products. Using innovative processes, it can become a revenue stream for the insurance companies while addressing the need for inclusive growth in society (impact).

However, instead of looking at micro insurance penetration as only a financial inclusion activity, an insurance company could consider to partner with a development program and dovetail MI products so as to add value to the program in the form of greater impact as well as serve as a commercial monitoring tool.

The approach in FINISH has been the latter: to integrate MI with sanitation behaviour change processes. Success can be enhanced by (i) availability of suitable products with insurance companies; (ii) encouragement by the regulator in using MI as a development tool, and; (iii) capability of insurance companies to put sustained effort and resources to innovate on processes that would make MI sustainable.

Behaviour change campaigns in sanitation are most likely to impact health care at primary level. Primary care products with fulfilment through outpatient facilities at hospitals may be a good combination for traditional high premium health insurance policies.

However, more than the hospitalisation insurance products, it would be beneficial if primary care financing products are integrated into the sanitation penetration program so that all stakeholders stand to gain thereby creating a win-win combination.

Micro-insurance would appear to be best combined with low cost telemedicine for the fulfilment of primary care requirements. This approach also suits the typical habitation of MI communities who are likely to be rural / and located in places where secondary and tertiary health care infrastructure (clinic respectively hospitals) is not easily accessible without huge travel costs which the poor will find difficult to bear.

This paper serves to highlight lessons learnt in conceptualizing, designing and implementing micro health insurance for the poor and hygiene deprived segments of society in India and Kenya. While the idea is simple, the complexity has to do with the health care system and its financing on the one hand and insurance and sanitation on the other. These are outlined in the paper. Its full version can be downloaded from, and
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