MARKET RESEARCH ON MICROINSURANCE DEMAND

Transcription

1 ADB TECHNICAL ASSISTANCE TO SRI LANKA FOR MICROINSURANCE SECTOR DEVELOPMENT MARKET RESEARCH ON MICROINSURANCE DEMAND October 2006 Prepared by: MOSLEH UDDIN AHMED FCA International Market Research Specialist 4 Telford Court, Alma Road, St. Albans AL1 3BP, UK Tel: ; mua@mircuk.org

2 Table of Contents 1. EXECUTIVE SUMMARY Low-income households need for microinsurance Insurance and the low income households Market development projections Conclusions and recommendations RESEARCH OBJECTIVES AND METHODOLOGY CONTEXT Low-income households Social security in Sri Lanka INFORMATION ON HOUSEHOLDS Demographics of households surveyed Income level Income source Disposable income Permanent disability and chronic illness THE NEED FOR MICROINSURANCE Risk exposures Risk frequencies Risk impact Risk perception Source of fund to face risk event INSURANCE AND LOW INCOME HOUSEHOLDS Awareness of insurance Usage of insurance Present and past usage of insurance Reasons for not buying insurance Attitude towards insurance Opinion about insurance and insurers Names of insurers Insurance Products Qualitative survey Quantitative survey FINANCIAL HABBITS MARKET DEVELOPMENT PROJECTIONS AND STRATEGIES The Access Frontier as a tool in making markets work for the poor

3 8.2 Application of Access Frontier in this study Market development projections CONCLUSIONS AND RECOMMENDATIONS ANNEX: ANNEX: ANNEX: ANNEX: ANNEX: ANNEX: ANNEX:

4 1. EXECUTIVE SUMMARY This research, under the Asian Development Bank funded Technical Assistance to Sri Lanka for Microinsurance Sector Development, sought to identify the potential microinsurance clients socioeconomic status, income and expenditure patterns, perception and understanding of insurance risks, affordability of insurance premiums, and risk mitigation measures, as well as other issues and constraints on access to microinsurance services. It covered both rural and urban areas with attention paid to remote rural areas and a special focus on tsunami and the war affected areas. The research used both qualitative and quantitative market research techniques and applied the Access Frontier Methodology to arrive at the market development projections. 1.1 Low-income households need for microinsurance Sri Lanka s national poverty line is 22.7% 1. There is a disparity in income level between the south & western provinces and north & eastern provinces, where in some areas the poverty line rises to 55% 2. In spite of a commendable UNDP HDI (0.740 or 96 th out of 177 countries), 66% of the population lives on less than US$ 1 a day and 45.5% live on less than US$ 2 a day 3. 80% of the households surveyed earn less than the national average income per person per month. In the north and eastern provinces, some people earn less than LKR 1,000 a month. Only 36% of the working-age population is covered under any social insurance scheme and Samurdhis provide benefits to around 46% of Sri Lankan households 4. Though the state provides free hospitalisation and treatment facilities in government hospitals and clinics, charges have to pay for lab tests and medicine. 39% of the low-income households surveyed do not have sufficient disposable income to buy some of the exiting microinsurance products available in the country. Household disposable income varies between LKR 50 per month (2.1% - mostly in the north and eastern provinces) and LKR 500 per month (34.5% - mostly in the south and western provinces). 32.2% of the households with disposable income have shown interest to purchase at least one concept microinsurance product offered to them and 28.5% are not interested to purchase the products for various reasons. Most low-income households are exposed to health related risks, followed by property. In addition to illnesses requiring a visit to a doctor (76.9%), 39.8% required hospitalisation with surgery. 33.9% of the low-income household had minor illnesses, 27.5% of them met with accidents leading to temporary disability, 26% required hospitalisation and surgery, 25.6% required hospitalisation and treatment more than once in the last 3 years. Damage to property (54.4%) due to natural calamities and war affected the economic standard of a household most. 78.7% of those affected by the tsunami live in the south and western provinces and 21.3% live in the north and eastern provinces. The low income households find it hard to cope with the financial pressure of unexpected shock and losses due to risk events. Most people use own funds (69.2%) to cope with risk events. This leaves them more vulnerable to future risks as their own resources would be depleted. People also pledge or sell their assets (39.5%) borrow from banks, microfinance institutions and friends/relations. A very small percentage (2.4%) mentioned insurance as their source of funds. 1 Department of Census and Statistics, Sri Lanka 2004 Report 2 Narayan and Yoshida International Centre for Ethnic Studies 4 Department of Census and Statistics, Sri Lanka 2004 Report 4

5 Microinsurance can give low-income households a tool to cope with financial pressures of risk events. To be effective and acceptable by the low-income households, microinsurance has to be appropriate for them in relation to cost, coverage, payment terms and delivery mechanism. 1.2 Insurance and the low income households Awareness about insurance of insurance products (88.6%) and insurance companies (83.1%) is high in the households but knowledge about the products and its benefits are quite low. Usage of insurance is quite low in the low-income households (19.7%). 81.4% had life insurance in the past 15 years but only 29.5% have continued with it. Many low-income households find microinsurance currently available in the country expensive (47.6%). A substantial number of low-income households do not trust the insurers (27.5%) and 21.3% do not have confidence on the financial ability of the insurers (21.3%). 17.5% said they did not buy insurance because no one approached them. 25.3% were found to be skeptic about insurance, 33.3% uneducated and 41.4% enthusiastic. 1.3 Market development projections We applied Access Frontier methodology to divide the low-income market into those who currently use or demand it (market enablement zone), those who could have but do not use it (market development zone), and those outside the reach of the market because of their low income or strong personal objections/opinion (market redistribution zone). The market enablement zone varied between 5.5% for property insurance and 41.8% for funeral insurance. The market development zone is the area that can be covered by microinsurance products that are appropriate for the market in relation to cost, coverage, payment terms and delivery mechanism. This zone varied between 18.7% for property insurance and 59.0% for health insurance. The market enablement zone and the market development zone define the possible market size for the existing and any new microinsurance products. Market redistribution zone is outside the reach of microinsurance either because the low-income households do not have or will not have the income in the foreseeable future to buy insurance, and hence beyond the reach of microinsurance providers. This segment of the market should be served by the state social security programme, People who are determined not to buy any microinsurance products because of their strong personal convictions also fall under this category. 1.4 Conclusions and recommendations Usage of microinsurance is quite low amongst the low-income households in spite of high awareness about insurance and the insurers. The occurrence of risk events, its frequency and its severity indicate that there is a need for microinsurance by the low-income households. The microinsurance products currently available are not suitable in terms of cost and terms. Low-income households are also skeptical about insurers. Therefore the usage of microinsurance at present is very low. Any newly designed microinsurance product has to be inexpensive, easy to understand, with appropriate terms and marketed through a low-cost mechanism. The scenario calls for an insureragent model of partnership where both the partners have to be well known in the market with high reputation. A massive awareness campaign is required to change the mindset of low-income households and generate confidence about the products and the insurance providers. 5

6 2. RESEARCH OBJECTIVES AND METHODOLOGY This research sought to identify the potential microinsurance clients socioeconomic status, income and expenditure patterns, perception and understanding of insurance risks, affordability of insurance premiums, and risk mitigation measures, as well as other issues and constraints on access to microinsurance services. It covered both rural and urban areas with attention paid to remote rural areas and a special focus on tsunami and the war affected areas. The study used both qualitative and quantitative market research techniques and applied the Access Frontier Methodology 5 to arrive at the market development projections. In identifying the objectives, the research addressed the following questions in depth: What is the low-income households perception of insurance as a risk management instrument? What is their attitude towards insurance and are they prepared to look at insurance as an alternative to their present coping mechanisms? What characteristics in a microinsurance product would attract the low-income households? What are their experiences and apprehensions regarding insurance, if any? What motivated those that are insured to purchase insurance? What are the reasons behind the decision for those that decided to discontinue? Are they able to afford and are willing to pay for insurance? If a new insurance product were specifically developed for them, would it be accepted by them? What is needed to maintain their continued loyalty to a service provider? What measures must be taken to change the mind-set of the low-income households? Market research for the Northern and the Eastern provinces was carried out by Independent Marketing & Research Services, with Mr. Amirthalingam Raviraj assisted by a team of 10 members. The Professional Consortium conducted the research for the Southern and Western provinces, with Mr. Daminda P K Geeganage assisted by a team of 15 members. Qualitative research The qualitative study in the Eastern province consisted of 4 focus groups (FG) of between 5 and 10 members each. For the quantitative survey both teams used face-to-face interview techniques, using purpose-designed questionnaires 6, show cards and concept study cards. The study was carried out in rural areas in Batticaloa and Ampara districts using 1 all male group, 1 all female group and 2 male-female mixed groups. 5 FGs were originally planned for the team but 1 was subsequently cancelled because of security problems in the conflict areas. The quantitative study in the Southern and Western provinces qualitative study consisted of 5 FGs, (2 rural areas, 2 tsunami affected rural areas and 1 in a tsunami affected urban area) in Galle, Matara, Hambantota and Kalutara districts. The FGs consisted of 5 to 10 members in male-female mixed groups. Both teams initially identified the FG leaders with the help of the Grama Savak/Niladhari in advance and then with the leader s support and cooperation, assembled a group on the day of the session. 5 Developed by David Porteus; Access Development methodology is further explained in Annex 5. 6 Adapted from materials developed by Michal Matul, Microfinance Centre for CEE and the NIS, and Microinsurance Centre 6

7 Both teams used participatory rapid appraisal tools and purpose-designed questionnaires 7 to conduct the FG sessions, and used audio equipment to record the discussions. Quantitative research For the quantitative survey, both teams used face-to-face interview techniques using purposedesigned questionnaires 8, show cards and concept study cards. The districts of Kalutara, Galle, Matara, Hambantota, Vavuniya. Batticaloa, Ampara, Trincomalee and Jafna were selected for the survey after consultation with the Team Leader, the International Product Development Specialist and the Domestic Market Research Specialists. The sample size was set at 1,250 households 750 for the Southern and Western provinces and 500 for the Northern and Western provinces. The sample size in each district was allocated in proportion to the district population. Surveys in Jafna and Trincomalee were subsequently cancelled due to security concerns in those areas and as a result, the sample size was reduced to 272 households for the Northern and Eastern provinces. To comply with the TOR, special effort was made to include remote rural, tsunami affected and conflict affected households in the sample selection. Stratified sampling methodology was employed. The households were randomly selected from the Grama Savak/Niladhari s (Village Headman) list of affected people in both rural and urban areas. Table 1: Distribution of sample - % TOTAL RR R AR U AU % % % % % RR = Remote rural; R = Rural; AR = Affected Rural; U = Urban; AU = Affected Urban Table1 above shows the distribution of population by settlement type. The sample did not include any households from Tea/Rubber Estates or Coconut Plantations. Table 2: Sample distribution by settlement type SURVEY AREA Total Rural Urban South & West Kalutara Galle Matara Hambantota North & East Vavuniya Batticaloa Ampara TOTAL 1, % Adapted from materials developed by Michal Matul, Microfinance Centre for CEE and the NIS, and Microinsurance Centre 8 ibid 7

8 Map 1: Districts surveyed and sample sizes 8

9 3. CONTEXT 3.1 Low-income households A typical profile of a low-income household is one that is employed in low-skill occupations, has diversified income sources, lacks ownership or access to productive assets, has low level of education, and has a large household size. A sizeable percentage of Sri Lanka s population fits this profile. There is very little abject poverty in Sri Lanka in terms of starvation and destitutation but there are specific pockets within the population that fall under a category called extreme poor. Unemployed estate workers, low-income households displaced by the tsunami and the conflict, in remote and isolated villages affected by flood, landslides and damage by wild animals, and marginalised social groups fall under this category. National poverty level is around 22.7% 9 and that in the north and east is estimated to be between 25% and 55% - with the higher figure applicable to the poorest province (Uva) in the country % of the population lives on less than US$ 1 per day and 45.4% live on less than US$ 2 a day 11. The UNDP HDI is estimated at and Sri Lanka is ranked 96 th out of 177 countries. 3.2 Social security in Sri Lanka Sri Lanka s commendable human development in terms of life expectancy, high education level and low population growth has created a population pyramid with a young generation at its base with a rapidly growing elderly population at the top. This growing aged population is making increasing demands on the country s welfare system. A major challenge the country faces is ensuring income security and social services to this growing pyramid of senior citizens. Sri Lanka s social insurance provides some protection, but coverage is limited and benefits are inadequate. Only 36% of the working-age population is covered under one or more formal schemes 12. The schemes that do exist are inadequate and have major deficiencies. Samurdhis are Sri Lanka s main social security programme, and it provides benefits to around 46% of Sri Lankan households 13. Social security also provides income support for disabled persons. Hospitalisation and medical treatment at government hospitals is provided free to every citizen. Charges for clinical tests and medicines have to be paid for. 9 Department of Census and Statistics, Sri Lanka 2004; Food poverty line LKR 973; Lower poverty line LKR 1,267; Upper poverty line LKR 1,579; Official poverty line LKR 1,423 (average of LKR 973 and LKR 1,579) 10 Narayan and Yoshida International Centre for Ethnic Studies Ibid 13 Ibid 9

10 4. INFORMATION ON HOUSEHOLDS Sri Lanka has a population of 19.7 million, with around 80% living in rural areas, 15% living in urban areas and another 5% living on estates and plantations. 52.4% of the population is female and 47.6% is male. 29.9% of the population has achieved up to primary level education and 41% has achieved up to secondary level education. 21.2% has achieved above secondary level education while 7.9% has had no schooling at all 14. The 2005 World Bank Report estimates the GDP per capita in 2003 (purchasing power parity) to be US$ or LKR 7,750 per month 15. The mean national average income per person per month in 2003/2004 was LKR 3, The 2003 Poverty line per person per month is LKR 1, The official poverty line is quoted in the Central Bank of Sri Lanka Report 2005 as LKR 1,423 based on 2002 prices. 4.1 Demographics of households surveyed Table 3: Demographics - % Categories % Gender Male household head 87.5 Female Household head 12.5 Marital status Single 1.2 of household Married/with partner 85.6 heads Separated/divorced 2.4 Widowed 10.8 Education level None 3.2 completed by Up to Grade household Grade 6 to heads GCE/ O level 32.5 A level 16.6 College/University 1.8 Age of Less than household 20 to heads 45 to Over Disability Household heads 1.9 Chronic illness Household heads 13.1 Household size More than Central Bank of Sri Lanka Report Exchange rate used 1 US$ = LKR Central Bank of Sri Lanka Report Asian Development Bank Economics and Research Department Working Papers No. 58, October 2004; Minimum required adult food expenditure is used as the national poverty line and is calculated for households that are (i) in the lowest income quartile, (ii) whose food expenditure is over 50% of total expenditure, and (iii) whose daily caloric intake is between 2,475 2,

11 4.2 Income level Graph 1: Household income by poverty level and income per person - % Non-poor Over LKR 2,581 per person per month 100% 90% 80% 20.0 Non Poor: household income over LKR 9,001 70% Vulnerable poor LKR 1,701 to 2,580 per person per month 60% 50% 40% 44.2 Vulnerable Poor: household income LKR 6,001-9,000 Poor: household income LKR 3,001-6,000 Poor LKR 866 to 1,700 per person per month Extreme poor below LKR 865 per person per month 30% 20% 10% 0% Extreme poor: household income below LKR 3,000 Graph 1 above shows income per person per month of the households surveyed. This was calculated based on the average number of persons per household 18. Income per person can be used in assessing and analyzing low-income market potential. 80.0% of households surveyed are well below the mean national average income per person per month. 25.3% of the households live below the 2004 poverty line defined in the Asian Development Bank Economics and Research Department Working Papers No. 58, October 2004 Report adults plus average 2.1 children per household; equivalence scale used: adult = 1; child = See footnote

12 Graph 2a: Household poverty level by district - % 100% % % % % % Non poor Vulnerable poor Poor Extreme poor Kalutara Galle Matara Hambantota Vavuniya Batticaloa Ampara There is a large income disparity between north & eastern and the south & western provinces. Some households in the north & eastern provinces earn less than LKR 1,000 a month. Of the households in the extreme poor group, 95.4% live in the north & eastern provinces. These households have been affected by both the tsunami and the on-going conflict. Almost all of the vulnerable poor and nonpoor households live in the south & western provinces. 12

13 Graph 2b: Household poverty level by settlement type - % 100% 90% 80% 70% 60% % 40% % 20% 10% 0% Affected Urban Extreme poor Poor Vulnerable poor Non poor Affected Rural Urban Rural Remote Rural Analysis of low-income households by settlement type shows a high concentration of extreme poor households in the rural (49.5%) and urban (45.9%) areas affected by tsunami and war. Similarly, the concentration of poor and vulnerable poor households is also found in affected rural and urban areas. 4.3 Income source The survey revealed that 73.0% of the household members were employed in either permanent or temporary jobs. 68.5% were self-employed and 28.7% received social benefits or grants from government or other organizations. 57.8% of the households have more than one source of income. A large number of the rural households grow small quantities of high value cash crops such as cinnamon, cardamom, cloves, tea etc and fruits such as coconuts, bananas, papaya, avocado and lime on their household plots. Many rural households also grow rice for their own consumption and sell their surpluses. These are quite popular in the south and western provinces and are regular sources of income for many households in those areas. This also accounts for a high percentage of non-poor households in remote rural areas. Table 6: Multiple income source - % Table 7: Assets owned - % % 1 Source Sources Sources 20.1 Over 3 Sources 5.2 : TOTAL % S&W % N&E % CD Player Colour TV Bi-cycle Motorbike Telephone Gas Cooker Fridge

14 Table 8: Income source - % % Employment 73.0 Permanent Temporary Self employment 68.5 Farming, Fishing, Livestock etc 12.7 Trading, Manufacturing 28.4 Services (garage/cleaning etc) 4.8 Trade/Vocation (masons, carpenter etc) 22.6 Pensioners 3.5 Social benefits/grants 28.7 Remittances 5.8 External 1.9 Internal 3.9 Others 9.2 Ownership of assets such as compact disc players, colour televisions, motorbikes, telephones etc. is an indication of the level of disposable income in a household. Table 7 above lists some of the assets owned by the households surveyed. Most of these households are in the south and western provinces. Focus group (FG) discussions revealed that some of these assets were purchased with compensation funds received after the tsunami. 4.4 Disposable income In order to assess whether the households are able to pay for the insurance products they are interested in buying, we computed the disposable income of the households by deducting their declared expenditure from their declared income. On that basis 39% of the households do not have any disposable income and are not able to buy any insurance. The remaining 61.0% households have disposable income which varies from under LKR 50 per month (2.1%) to over LKR 500 (35.4%) per month. Of the households with disposable income, 32.5% have shown interest to buy at least one concept insurance product and 28.5% have no interest any insurance. Graph 3a: Disposable income by district - % Kalutara Hambantota Galle Matara None Under Ampara Vavuniya Batticaloa Over

15 Graph 3b: Disposable income by region - % Total North & East South & West None Under Over Permanent disability and chronic illness 83 or 8.1% of household members, which includes 19 or 1.9% of household heads, have permanent disabilities and 316 or 31.0% of members, which includes 133 or 13.0% of household heads, suffer from chronic illness such as asthma, cancer, diabetes, heart attack, stroke, hepatitis, and AIDS/HIV. Disability is higher in the south and western provinces and in the poor households. Chronic illness is also higher in the south and western provinces and in the vulnerable poor and non-poor household income groups. Graph 4: Households with permanent disability and chronic illness - % 100% 80% 60% 40% Chronic illness Permanent disability 20% 0% 1.9 Household heads 6.2 Other members 15

16 5 THE NEED FOR MICROINSURANCE The financial ability of a household is depleted whenever a member is faced with a risk situation. Low-income households face the greatest impact of risks, as they do not have the financial ability to cope with risk events especially recurrent risks. Microinsurance attempts to mitigate such situations and help such low-income households to cope with risk events. Microinsurance protects the low-income households against specific shocks using risk pooling in return for regular affordable premium payments 20. The premiums are proportionate to the likelihood and cost of the risks involved. Characteristics of microinsurance are affordable premium, low-cost delivery mechanism, transparent procedures, appropriate coverage and terms that respond to the limited and variable cash flow and the low-income households unstable economic environments. When considering the potential for microinsurance products, it is important to identify the risk events the low-income households face, and the magnitude and frequency of such risks, and the effect of those risks on the households financial ability. 5.1 Risk exposures Health is the largest risk faced by the low-income households, followed by property risk (67.4%). 76.9% of the households visited a doctor and 39.8% required hospitalisation and surgery. The property risks were almost wholly due to tsunami. There was no reporting of risk to property due to flood, landslide, fire or wild animals. Exposure to natural death risks (13.8%) and accidental death risks (12.1%) is also considerable. In almost all cases the low-income households in rural areas are more exposed to risk events than those living in urban areas. FG discussions during the qualitative survey also reflected a high exposure of health related risks. Graph 5: Household exposure during last 3 years - % 100% 80% Risk exposure 60% 40% 20% 0% Visitng doctor Livestock Death (accidental/unexp... Treatment Temporary disability Death of bread winner Permanent disability Surgery Death (natural) Minor illness Crop damage Theft of assets Property damage Exposure to health related risks is higher in the rural areas and in the south and western provinces, and significantly lower in the north and eastern provinces. For treatment including a visit to doctor the exposures are: Kalutara 30.2%, Galle 28.1%, Matara 21.2%, Hambantota 13.9%, Vavuniya 20 The CGAP Working Group on Microinsurance: Donor Guidelines for Funding Microinsurance (2003) 16

17 0.5%, Batticaloa 2.8% and Ampara 3.3%. For illness requiring hospitalization and/or emergency service and surgical treatment the exposures are Kalutara 17.9%, Galle 28.3%, Matara 27.5%, Hambantota 16.7%, Vavuniya 0.5%, Batticaloa 8.1% and Ampara 1.0%. For illness requiring hospitalisation and/or emergency service and therapeutic treatment the exposures are: Matara 41.9%, Galle 20.9%, Kalutara 21.4%. Hambantota 16.7%, Ampara 11.9% and Batticaloa 2.4%. In addition, households in the vulnerable poor income group are more frequently affected by health related risks than other income groups. FG discussions during the qualitative survey also reflected more exposure to health related risks in the south and western provinces than the north and eastern provinces. Graph 6: Household exposure during last 3 years - % (distribution by settlement type) Rural Urban Death (natural) Minor illness Illness requiring hospitalis... Illness without hospitalisa... Weather affecting agricultur.. Accident leading to tempo... Death (accidental/unexpected Accident leading to perm... Theft of asset over LKR 5,000 Illness with hospitalisatio... Damage to property Death of bread winner Livestock diseases Graph 7: Household exposure to risks during last 3 years - % (distribution by districts) Mantara Galle Hambantota Kalutara Batticaloa Vavuniya Ampara 100% 80% 60% 40% 20% 0% Damage to property Livestock diseases Death (natural) Minor illness Major illness - treatment Major illness - surgery Illness needing doctor Death of bread winner Weather affecting agricult... Accident - temporary disab... Death (accidental/unexpe... Accident - permanent disab... Theft of assets valued mor... 17

18 5.2 Risk frequencies Households are more frequently affected by health related risks, accidents with temporary disability (27.5%), hospitalisation requiring surgery (26.0%), hospitalisation requiring treatment (25.6%), agricultural production related risks (20%) and accidental/unexpected death (16.1%) affect households than any other risks. Risk related to death of a breadwinner and properties are not frequent. Graph 8: Occurrence of more than 1 risk of the same type % Accident leading to temporary disability Illness requiring hospitalisation and/or treatment Weather conditions affecting agricultural production Accidental/unexpected death Illness without hospitalisation, but needed visit to a doctor Illness requiring hospitalisation and/or surgical treatment Minor illness Natural death Theft of assets valued more than LKR 5,000 Death of breadwinner Livestock diseases 18

19 5.3 Risk impact Damage to property due to natural calamities and conflict affected the economic standard of living of the households most. 54.4% of the households were affected. This reflects the devastation caused by the tsunami and damage to property in the conflict areas. Of the households that were affected by tsunami and conflict, 58.6% lost all their assets and 41.4% lost part of their assets. 78.7% of those affected by tsunami live in the south and western provinces and 21.3% live in the north and eastern provinces. The conflict damages are all in the north and eastern provinces. Health related risks (hospitalization with surgery 28.0% and illness requiring visit to a doctor 20.2%) and life related risks (unexpected death 11.1%, natural death 8.5%) also put the households under relatively more financial pressure than other risk events. Graph 9: Risks that reduced household economic standard of living most t- % Illness without hospitalisation, but needed visit to a doctor Illness requiring hospitalisation and/or surgical treatment Minosr illness Natural death Aaccidental/unexpected death Damage to property Death of breadwinner Livestock diseases Accident leading to temporary disability Accident leading to permanent disability Theft of assets valued more than LKR 5,000 Weather affecting agricultrual production Illness requiring hospitalisation and/or treatment 19

20 5.4 Risk perception Difficulties of coping with risks reflect a households perception of the importance of a risk event. The tsunami was most unexpected and therefore 60.5% of the households surveyed perceived that as being the most difficult risk event to cope with. Because of the incidence of tsunami is quite a rare, we looked at the ranking after removing tsunami from the responses. In the alternative calculation, health risks (63.5%) were revealed to be the most difficult to cope with in the respondents perception. Graph 10: Risks most difficult to cope with - % Death accidental Illness without hospitalisation, but needed visit to a doctor Illness requiring hospitalisation and/or surgical treatment Minor illness Death-natural Damage to property Death of breadwinner Livestock diseases Accident leading to permanent disability Theft of assets valued more than LKR 5,000 Weather affecting agricultrual production Accident of household members leading to temporary disability Illness requiring hospitalisation and/or treatment 5.5 Source of fund to face risk event Low-income households all over the world have been found to be very innovative when it comes to finding funds to cope with risk situations. They use a variety of risk management techniques and raise funds from multiple sources. Households surveyed used more than one source of funds to cope 20

21 O with the risks they faced. 69.2% used their own funds together with funds from other sources. 60.4% combined this with grants from the government, Samurdhis, NGOs, CBOs and national and international charitable organisations. The majorities of these are tsunami and conflicted affected households. A very small percentage (2.4%) received funds from insurance. Using own funds and pledging household or income generating assets severely weaken the lowincome households ability to cope with further risk situation in the. Microinsurance can mitigate such situations. Graph 11: Source of fund to deal with risk events % Getting additional job (or working more) Borrowing without interest from relative Using own funds, depleting savings, etc Borrowing with interest from relatives/friends Using rotating saving associations Selling animals, fruits and other stored agricult Getting assistance from the employer (package Pledging household assets in pawnshop l Donation from relatives, friends and priv r Borrowing from money lenders Borrowing from CBO Grants from Government, Samurdhi, NGO, CB Selling household assets (including jewellery, Going abroad for work Borrowing from banks Insurance Other s (inc ate pe s and friends uding jewe ural produ s and... house... sons FG discussions during qualitative survey also reflected use of own funds to cope with risk situations. A large number of householders mentioned that their insurance claims were rejected by the insurers because of technicalities. This could be one of the reasons for low use of insurance funds for risk situations and low confidence on the insurers. 21

22 6 INSURANCE AND LOW INCOME HOUSEHOLDS 6.1 Awareness of insurance Households are well aware of different types of insurance products. 76.5% are aware of life insurance, 30.2% are aware of funeral insurance, 25.4% are aware of health insurance and 25.0% are aware of disability (accident) insurance. Only 11.4% of the households are not aware of any insurance products at all. Awareness is high in the poor and vulnerable poor income group, and very low in the extreme poor income group. Households in the south and western provinces are more aware of insurance products than those in the north and eastern provinces. The qualitative survey also revealed that households are aware of different insurance products but are not knowledgeable about their benefits and the risks covered. They also reported reservations about the reliability and dependability of the insurers. Commercial insurance agents regularly visit the households in an effort to sell their products. Graph 12: Awareness of insurance products - % Life Funeral, Burial Health Disability Insurance for Fisherme acci... Educational Support Agricultural - crop, live Other policies Property - houses, boats, business as Do not know any of ins ts stock nt - boat, nets, urance produc sets 22

23 Graph 13: Awareness of insurance products by district - % 100% 90% 80% % 60% 50% 40% 30% Ampara Vavuniya Batticaloa Kalutara Hambantota Galle Matara 20% 10% 0% Life Funeral, burial Other policies Health Property Insurance for Fishermen Educational Support Disability (accident) Agricultural - crop, livestock Do not know any of insurance products 23

24 6.2 Usage of insurance Of the households that are aware of life insurance products, 81.4% have or had life insurance in the last 15 years; funeral %; health %; disability (accident) %. Present and past usage of educational support insurance (5.2%), property insurance (5.1%), insurance for fishermen (3.2%) and agricultural (crop) insurance (0.8%) are quite low. Graph 14: Types of insurance held in last 15 years - % 100% 80% % 40% % 0% Life Funeral, burial Health Disability (accident) Property - houses, boats, business assets Insurance for Fishermen - boat, nets, accidents Educational Support Agricultural - crop, livestock Other policies Non-poor Vulnerable poor Poor Extreme poor Usage of insurance is higher in the vulnerable poor and non-poor households and very low in the extreme poor households. Usage of insurance is highest in Galle, followed by Kalutara and Matara and very low in Vavuniaya, Batticaloa and Ampara. 24

25 Graph 15: Types of insurance held in last 15 years - distribution by district (%) 100% % % % % % Life Funeral, burial Health Disability (accident) Property - houses, boats, business assets Insurance for Fisherm en - boat, nets, accidents Educational Support Agricultural - crop, livestock Other policies Ampara Vavuniya Batticaloa Kalutara Ham bantota Galle Matara 25

26 6.3 Present and past usage of insurance 30.7% of the households that were surveyed discontinued one or more insurance policies in the last 15 years for various reasons. 59.3% of those discontinued are in the vulnerable poor household group. The majority of the households are in the south and western provinces. Usage of insurance is very low in Batticaloa, Vavuniya and Ampara districts. When considering all households, usage of insurance is relatively high in the vulnerable poor and non-poor households. During FG discussions, some of the households that discontinued insurance mentioned cost and unsatisfactory service as being the reasons for discontinuing their insurance. Graph 16: Usage of insurance - current and past (%) 100% 90% 80% % % 50% 40% 30% Non-poor Vulnerable poor Poor Extreme poor 20% 10% 0% Hard to say Have now Used to have insurance Do/did not have insurance Graph 17: Usage of insurance- present and past ownership (%) Total Lowincome Yes, have now Yes, used to have in last 15 years Total 26

27 6.4 Reasons for not buying insurance We asked those households that did not have any insurance in the last 15 years about their reasons for not buying insurance. 47.6% responded saying that they found insurance too expensive, while 33.2% said they had not heard about insurance. 27.5% said they did not trust an insurer and 21.3% thought an insurer might go bankrupt or run away with their money. Lack of awareness, misinformation and lack of trust are the main reasons for their not having insurance. 17.5% responded saying they did not buy policies because no insurers had approached them. The poor and the vulnerable poor group appear to be more unaware, misinformed and have the greatest mistrust of insurers. Many of households formed their opinion because of personal experience or information received through word of mouth or hearsay. Many formed opinion out of ignorance. Most of the unfavorable experience arose due to non-transparent/complicated policy terms which led to rejection of claims, reduction in benefits and disputes. Graph 18: Attitude towards insurance by income group - % All Extreme poor Poor Vulnerable poor Non-poor Other Reasons We have not needed insurance - I think nothing s... I am not sure if insurance will work because 3rd p... I do not have time to think about insurance. My household has not needed insurance becaus... If I were approached by an insurance agent I woul... Current terms and conditions do not suit me. The insurance agents/ offices are too far from the... Never heard of insurance/ do not have enough in... I do not know where to find insurance/ nobody a... No trust in insurance companies - they can go ba... No trust in insurer -heard that insurers do not pay... Head it is a long/ difficult process to realize a claim. Insurance is too expensive for me/price is too high % 20% 40% 60% 80% 100% 27

28 6.5 Attitude towards insurance Analysis of questions asked to assess the low-income households attitude towards show 41.4% were positive about insurance 33.3% were uneducated, 25.3% were skeptic about insurance/insurers Graph 19: Key market segments by attitude towards insurance - % Thinks insurance is expensive Does not think insurance has any use Insurance is for rich people 41.4 Wants to know about insurance Trusts insurers Believes in the benefits of insurance 33.3 Uneducated Sceptic Enthusiastic 25.3 Thinks insurance does not help Does not make sense to have insurance Does not trust insurers Focus group discussions during qualitative research reflected the similar views. During focus group discussions several participants showed some degree of hostility towards insurers initially but by the end of the discussion they were convinced of the benefits of insurance and its advantages in facing household risks. 28

29 6.6 Opinion about insurance and insurers We asked all households for their responses as to whether they agreed or disagreed with a variety of questions designed to test their mindset. Some of the questions were designed to lead them away from prototype answers. Lack of knowledge, misinformation about insurance products and distrust of insurers are quite prevalent in the households surveyed. 38.6% of the households said they needed more information about insurance; 41.4% think that claim processes took too long time; 50.7% thought insurance was too expensive; 45.2% do not trust insurers; 43.9% thought insurance was only for rich people and 31.7% think insurance is a waste of money. Focus group discussions during qualitative research also revealed some of the same views. Graph 20: Attitude towards insurance by opinion - % Strongly disagree Rather disagree Rather agree Strongly agree Hard to s ay It is a long/ bureaucratic process to realize a claim Having insurance is prestigious I will buy a policy if I am approached by an agent Insurance is only for rich people It does not make sense to insure because we can... Insurance is expensive I do not have time to think about insurance Insurance is a standard service in a civilized world Insurance is a waste of money Insurers are socially useful Insurers do not pay benefit It does not make sense to insure as nothing serio.. I don t trust insurers When somebody is insured he/she can live without... Insurers are not stable financially and can go bankru.. I would need more information about insurance The insurance agents are too far from where I live % 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 % 2 29

30 6.7 Names of insurers The households surveyed knew almost all the major insurers in Sri Lanka by name. 83.1% of the households could mention the names one or more insurers in the country. Households in south and western provinces (69.6%) were better informed about insurers than those in north and eastern provinces (44.5%). Rural (63.9%) and urban (66.1%) households were more or less equally informed. 54.9% of the households could name Ceylinco and of these households 65.9% were from the poor income group. Sri Lanka Life is the next most well known insurer (36.2% of which 19.1% are from poor group) and next is Janashakti (22.7% of which 23.2% are from poor group). Graph 21: Names of insurers known to the households - % Total % Poor households % Sanasa Farmers Janashakthi Sarvodaya HNB Assurance Eagle National Insurance Corpor... Life Insurance Corporation Does not know any insure.. Union Assurance Samurdi Insurance Ceylinco Almao Co-operative Insurance Asian Alliance Sri Lanka Life Insurance Insurance Products During our qualitative and quantitative surveys we presented the concepts of four insurance products currently available in Sri Lanka to the households to test their understanding of insurance products, their likes and dislikes of the terms, their preferences about premiums payments and their willingness and ability to buy one or more products. The four concepts are summarized in Box 1 below. The responses from the two surveys are also summarized in the following paragraphs. 30

31 Box no 1: Product concepts tested health insurance and funeral/burial insurance Health microinsurance Cove rage: This covers healthcare costs of the policyholder, spouse and all of their children up to age 18. Bene fits: The insurer will pay hospitalisation cost of up to LKR 40,000 for each event but a maximum of LKR 50,000 in total in any one year. This will not cover any expenses related to treatment or medicine for outpatients department visits. Treatment at outpatients departments of government hospitals and clinics is provided free by the government and need not be insured. Clai ms processing: Benefits are paid to the policyholder in cash immediately on claiming with all required documents. Price: LKR 1,725 per year per household or LKR 144 per month. Restrictions You have to be a member of the credit thrift and co-operative society. Frequency of premium payment: Premium is payable in one installment in advance each year. Proximity: The service is available through branches of the insurer or its associated organisations. Provider: The service is provided by an insurance company associated with a leading credit thrift and co-operative society in the country. Funeral/Burial microinsurance Coverage: The policy pays cash towards funeral or burial costs of the policyholder or family member. Benefit: LKR 10,000 per death up to a maximum of 2 deaths in any one year. Claim processing: Within 1 day of the claim with all required papers. Price: LKR per household per year or LKR 14. per month. Restrictions You have to be a member of the credit thrift and co-operative society. Frequency of premium payment: Premium is payable in one installment in advance each year. Proxim ity: The service Box no is available 2: Product through concepts branches tested of the insurer or its associated organisations. Provider: The service is provided by an insurance company associated with a leading credit thrift and co-operative society in the country. 31

32 Box no 2: Product concepts tested life insurance and property insurance Life microinsurance Cover age: The policy runs for a period of 10 years and pays cash to a person named in the policy in the event of death of the policyholder during this period. Benefit: The policy will pay LKR 181,500, plus an additional amount called bonus which depends on the profit the company makes each year, to your family in case you die of natural causes during 10 years of taking out the policy. If you died unexpectedly due to an accident, the company will increase the amount to be paid to LKR 199, 650 plus bonus. If you did not die within the 10 years of taking out the insurance, the company will pay to you LKR 18,150 plus bonus at the end of the 10 year period. Price: The premium payable is LKR 3,278 per year payable in advance at the beginning of each year or LKR 273 per mont h. Restrict ions: You have to be a member of the credit thrift and co-operative society. Frequency of premium payment: Premium is payable in one installment in advance each year. Proxim ity: The service is available through branches of the insure or its associated organisations. Provider: The service is provided by an insurance company associated with a leading credit thrift and co-operative society in the country. Property microinsurance: Cover age: The policy covers damage to property and assets through storm, fire and all other natural perils, and loss of assets through burglary, robbery or theft. Benefi t: Up to LKR 100,000 paid in cash direct to the policyholder. Claim processi ng: With in 3 days of notification of the loss. Price: LKR per year or LKR 72 per month. Restrictions: You have to be a member of the credit thrift and co-operative society. Frequency of premium payment: Premium is payable in one installment in advance each year. Proxim ity: The service is available through branches of the insure or its associated organisations. Provid er: The service is provided by an insurance company associated with a leading credit thrift and co-operative society in the country. 6.9 Qualitative survey The qualitative survey revealed that the households are aware of all major insurers and of all four concept insurance products but lacked knowledge of the products and their benefits. Life, health and funeral policies were in demand but not property. They are willing to pay up to LKR 200 per month for insurance in monthly installments. They do not perceive tsunami to be a threat in the foreseeable future. They are confident to receive financial and physical support from the government and donors in the event of any major natural calamity and therefore do not find insurance of property is a necessity. They responded that in spite of free treatment at government owned hospitals, one still has to pay for clinical tests, medicines and also some incentives to administrative staff at the hospitals to quicken the administrative formalities, and hence they would like some kind of cash benefit through a health insurance. Average cost incurred by the households is around LKR 300 per risk event requiring a hospital visit. 32