Kore W Microinsurance
Fonkoze realized several years ago that its microloan clients needed tools, like those available in the developed world, to safeguard against risk and maintain their livelihoods. Starting with the debilitating hurricanes in 2008 and continuing after the earthquake in 2010, Fonkoze worked with a network of private-sector and institutional partners to establish an insurance mechanism that provides coverage from catastrophes at a price affordable to our clients. The result was the creation of a brand-new (re)insurance company, the Microinsurance Catastrophe Risk Organisation (MiCRO), to insure the risks of the world’s most vulnerable, and the rollout of Kore W, Fonkoze’s catastrophe recovery product for its clients in Haiti.
Starting in January 2011, Fonkoze began enrolling every microloan client in Kore W as they took new credit. By July, 100% of Fonkoze’s microfinance clients (about 56,000 at the time) were enrolled in the product, a number which stands at over 60,000 now. This insurance costs most clients 3% of their loan value, paid at time of disbursement; loan size typically ranges between US$125 and US$1,250.
MiCRO, which employs an innovative hybrid insurance solution to reduce the cost of coverage to vulnerable people in a high-risk region, is a strategic collaboration between Fonkoze and a number of stakeholders including:
- Mercy Corps
- Swiss Re
- Caribbean Risk Managers Limited
- Guy Carpenter and Company, LLC
- Alternative Insurance Company (AIC)
- UK Department for International Development (DFID)
- Swiss Agency for Development and Cooperation (SDC)
MiCRO’s product covers Fonkoze’s clients’ principal loan balance in the event of a catastrophic loss, as well as a $125 cash payout, allowing Fonkoze to pay out benefits to its borrowers to assist in their recovery.
The first component of the product is a commercially reinsured “parametric” contract where payments are automatically triggered if objective thresholds are exceeded for rainfall, wind speed, or seismic activity at any Fonkoze location throughout Haiti. The second component is coverage for Fonkoze for the “basis risk” – or the differential between the coverage provided by the parametric payout and the actual benefits payable to borrowers under the Kore W program criteria.
Currently, global insurance leader Swiss Re backs the parametric policy, while MiCRO’s risk-bearing cell for Haiti, further backed by a Multi-Donor Trust Fund (MDTF) managed by the Caribbean Development Bank, provides funds to pay basis risk claims . Support from the UK Department for International Development as well as the Swiss Agency for Development and Cooperation has contributed both to the MDTF and MiCRO’s risk-bearing cell for Haiti.
This broad-based partnership is allowing Fonkoze to provide its clients with a essential product, given Haiti's manifest vulnerability to natural disasters.
What do Fonkoze clients say?
In March 2012, in coordination with the Microinsurance Learning and Knowledge Center, Fonkoze conducted in-depth surveys with 46 clients who were affected by flooding rains in October 2011. 36 of these clients received payouts for their damage while 10 made claims which did not merit a payout according to the guidelines.
The clients were asked “Do you think the insurance product is a good addition to Fonkoze’s loan products”? Of clients who benefited, 97% responded affirmatively, as did 90% of those clients who did not receive a payout. Similarly, clients were asked whether they would recommend Fonkoze to a friend because of the insurance product. 85% of clients who received a payout indicated that they would, while 70% of clients who did not receive a payout indicated the same.
Making a good thing better
Simply paying out over 6,000 clients in 2011 has shown the need on the ground for such a program to help clients recover following natural disasters. Similarly, reduced dropout rates and higher growth rates have shown that the insurance product is also benefiting the institution. Feedback from clients has shown that those who receive payouts overwhelmingly attribute their ability to get back on their feet after a catastrophe to Kore W.
At the same time, there is certainly room for improvement. For example, it takes too long for clients to receive payouts—up to 46 days in some cases. Better integration of information technology could help to cut that delay by up to two weeks.
Microinsurance is one of many client-support programs that we are implementing. At Fonkoze, we are always looking to enhance our business model, because a better Fonkoze means a brighter future for our clients.