In this episode of Critical Point, host Lesley Pink catches up with Michael McCord of the MicroInsurance Centre at Milliman to talk about cow mortality, climate change, and some of the projects he’s helping spearhead across the globe.
Disclaimer: This podcast is intended solely for educational purposes and presents information of a general nature. It is not intended to guide or determine any specific individual situation and persons should consult qualified professionals before taking specific action. The views expressed in this podcast are those of the speakers and not those of Milliman.
Lesley Pink: Hello and welcome to Critical Point, brought to you by Milliman. I'm Lesley Pink and I'll be your host today. In this episode of Critical Point, we're going to be talking about microinsurance. In 2017, the MicroInsurance Centre joined Milliman and is now officially part of the company. The MicroInsurance Centre at Milliman aims to provide access to microinsurance products to three billion low-income people around the world. Joining us today is Michael McCord, managing director of the MicroInsurance Centre at Milliman. Michael is one of the world's leading experts in developing and managing microinsurance products and has been a key figure in the field for over two decades. Welcome to New York, Michael.
Michael McCord: Thank you so much, Lesley. It's an honor to be here. I really appreciate the opportunity.
Lesley Pink: Great. Well, let's start with those who might not be familiar with microinsurance. Can you explain what microinsurance is?
Michael McCord: Microinsurance is insurance that's specifically designed for lower-income people. In the same way that we design particular products for the commercial markets, for the multinational markets, for middle-income, 50-year-old males, we design products for the low-income market specifically. So this has implications in terms of the pricing, what the risk is. It has implications in terms of the marketing-- how do we sell to people who are maybe reluctant to purchase insurance? It has implications around how the product is designed and the coverage and how quickly the coverage is paid when there is a claim and how simple the processes are. So all of the aspects of an insurance product are designed to be able to impact this lower-income market.
Lesley Pink: So this crosses all kinds of insurance-- health insurance, property and casualty, life insurance. So it's pretty much similar to regular-- to all the products that are offered in regular insurance, just on a different level.
Michael McCord: In title they're similar. So you have hospital cash-- you have hospital cash in non-microinsurance traditional markets. You have hospital cash in microinsurance. But what hospitals you can see, how it gets sold, how it gets marketed, how you get your questions answered, and how you get your claims is all different.
Lesley Pink: Right. So it would be a health-- that would be the health area, the life insurance area. Property and casualty would be for-- what kind of things would be covered under property and casualty in microinsurance?
Michael McCord: So in microinsurance, we have everything from market fire protection-- so these markets that you find in developing countries where everyone's selling tomatoes and clothes and things, we have insurance products that cover those for fire. We have products in the Philippines, for example, that cover typhoons and the damage that's done for typhoons. We cover home destruction, and really the broad range of products we just adapt to the low-income market.
Lesley Pink: What is the most common product in microinsurance? Is there one?
Michael McCord: The most common product that we see is credit life insurance, which is sold by banks and microinsurance institutions. Unfortunately, it's not the most demanded product, and this is a place where the MicroInsurance Centre at Milliman works really hard, is to help match the demand the clients have with the supply, the products that we have. And so a lot of our work is designed to help insurers to be able to provide those products that have better value. Credit life is a very easy product, and typically the beneficiary is the bank or the microfinance institution, and when I talk to clients-- I mean, real low-income clients-- they'll tell me, "No, no, that's not for us. It's for the bank, and they want cover for them."
Lesley Pink: What is credit life? Can you explain a little bit about what it is?
Michael McCord: So credit life insurance is when someone takes out a loan—commonly, these are working capital loans. Sometimes they're manufacturing loans. So you take out a loan, and there's insurance provided in case you die or are disabled. Then the loan is repaid, and generally that's how it works-- strictly the loan is repaid, and this is why people think that it's for the bank, the lender, and not for them.
Lesley Pink: I see. So what product is most in demand then?
Michael McCord: Products that are most in demand are typically around health insurance. Health insurance is a huge issue for low-income people. They may be able to cover outpatient issues, but once there's inpatient problems or problems that require inpatient coverage, then this is large amounts of money-- relatively large amounts of money-- that they need all at once. And so it's that shock of having to be able to spend that money, because when your kid is really sick, you can't just wait until you get more money, which is what happens in reality. So if we can get insurance to them, then they can get care quicker; they don't get as sick, they don't spend as much money. Health is really the key. Life insurance is probably the next, and people want-- when we think about life insurance, it's important to recognize that there are kind of three levels of cover that's needed. First is the credit life. If you've got a loan, then that needs to be covered so the family doesn't have a burden. Next is the burial and all the events that go around that. Typically, low-income people without insurance will be financially devastated after a funeral, so then the third piece is what do they do once the festivities are over and everybody has gone and there they are in their house with their kids and they've lost a breadwinner? So how do they live there? And so we try to design products that fit in those levels.
Lesley Pink: Is there an area of the world that you seem to be focusing on more than others these days, or do you pretty much work all over the world?
Michael McCord: We have projects pretty much all over the world, and right now, we're working on things in Brazil and Nigeria and Ethiopia and China and Tajikistan, Armenia, Georgia-- really all across the globe-- and there are sometimes-- there's sometimes years when we tend to group up. Sometimes we've had mostly Africa work, for example. Sometimes mostly Asia, but typically it's all across the globe.
Lesley Pink: Can you tell us about a project or two that you've been working on? One that I thought was especially interesting was a project in Lebanon, helping Syrian refugees with their financial lives. Can you tell us about that?
Michael McCord: Yeah, Lesley, this is a really exciting one that we're doing with the Consultative Group to Assist the Poor, CGAP, which is-- they focus on low-income markets financially-- and what we're looking at is really two sides. One is what's happening financially to the Lebanese who are in areas that the Syrian refugees have come to, and the other is, exactly as you say, what kinds of financial issues are the Syrian refugees having, and then based on that research, then there will be products developed to try to help both sides, because you can't just help the refugees. You have to be able to provide some additional benefits to those folks who are living there too, because now they're sharing resources, and you want to make sure that there's a positive relationship between the groups.
Lesley Pink: That's incredibly interesting, and you've also been doing work in Tajikistan. What kind of work has that been?
Michael McCord: Yeah, Tajikistan, we're working with a bank, and the bank's related insurance company, and there, in Tajikistan, there's no agriculture insurance, and yet the vast majority of people are dependent on agricultural production. It's small agricultural production, less than a hectare, on average, and so what we're trying to do is understand the market and what's going on there, and to develop some products to help those people when the rains don't come, when they come too much, when there's too much flooding. Even-- it's interesting, even when it's too cold in the springtime, they have-- they have channel systems that have been put in by the government to provide water to the farmers. The channel systems are fed by snowmelt, and what's happened in the last couple years is that the snow has melted much later because it stayed colder in the mountains, and so when the farmers are supposed to be providing-- or planting the seeds, there's no water, and so this creates a problem. And it's interesting, I found-- I learn so much crazy things in this work-- but I learned that in order to plant cotton, which most people plant at least some of-- they often do multi-crops, but most people do some cotton. In order to plant cotton, it has to be 13 degrees C in the ground, and then they have to have 2000-degree days, total of all-- Celsius-- total of all Celsius degree days in order for them to bud and produce properly. And so one of the concerns we have is that if we're pushing out the front end-- so it's not March anymore, it's maybe the end of April before they can plant-- what happens at the other end? And so will they still have the 2000-degree days? This year they had excessive heat, so I guess that was okay, but it's actually interesting. I mean, the work we do is really, really very interesting because you have to get down-- literally-- and there are photos of me in the fields with these farmers talking about how they do the irrigation and such, and it's really fascinating.
Lesley Pink: Are there other projects that focus on the agricultural right now that you're working on?
Michael McCord: We go in phases, as it seems, and right now we are actually in an agriculture phase. We have a project in Shaanxi, in China, a project in the Republic of Georgia, and in Ethiopia, where we're working on agriculture in all of those countries, and this is with the International Fund for Agricultural Development, which is a U.N. organization, IFAD, and the objective of the project is to identify innovative risk management solutions for the rural poor. So it's completely open, and it allows us the chance to go in and take a really close look at what's going on, what are the risks people are facing, where are the gaps in their risk management strategy, and how can we then put something together that can help them-- insurance, not insurance, whatever-- risk management-- and we're-- it's forcing us to think about risk management in a much broader way. And so like in Georgia, for example, what we've identified is actually not crops but livestock, and even specifically milk cows. There's a big issue with milk cows. Clients-- potential clients-- are really concerned with mortality, cow mortality, because if you've got four cows and one of your cows dies and you're relying on the milk, then 25% of your income is gone, right? So this is a big deal. So we're working on, yes, a mortality-- a cow mortality product-- but then how do we help to reduce the mortality, or the unnecessary mortality, if you will? And so we're looking at working with the veterinarian system, but in Georgia, although they had maybe too many vets when they were part of the USSR, when the USSR pulled out, the Russians went back, and so they have very few veterinarians. And so what we're doing is we're working on trying to help support them, so we're even trying to develop a call-a-vet system, which you probably won't hear about anywhere, but to save the vet from having to go out to the farm. It saves them time and allows them to focus on more important things, more important medical or veterinary issues, and at the same time saves money for the farmer, and at the same time helps to keep the mortality down for the insurance.
Lesley Pink: So these are people who are literally calling a vet.
Michael McCord: They would call a vet, yeah.
Lesley Pink: On that note of technology, how are you seeing mobile phones and technology affecting these markets, if at all?
Michael McCord: So we see mobile phones affecting the markets in a number of ways. The first, the one that most people see now, is insurance that's linked with mobile phones. And so there's a methodology that-- methodology now that's used by two major companies, at least MicroEnsure and BIMA, which work with mobile network operators. And so in these cases, the mobile network operators actually offer the insurance to their market, and in the beginning, it's typically paid for by the mobile network operator, the MNO. And so they do that for six or nine months, so everybody they have gets covered. Then they say, "Okay, we can double the coverage, and you pay for the second half," and then after another six to nine months, then they completely move out of payment and it all gets paid by clients. But a way of getting people in, and at the same time getting huge volumes. So this is an important mechanism. What we're also seeing is a lot of back-office-- insurtech-- how do you manage all this? So we have a friend in the Philippines who runs a pawn shop, and he says that they sell close to 1.5 million policies a month, and they do this--
Lesley Pink: One point five million?
Michael McCord: One point five million. They have almost a thousand offices throughout the Philippines, which is tons of islands.
Lesley Pink: Right.
Michael McCord: Right? And so they have reach that's almost entirely throughout the country, and they sell these products, but they couldn't do that without being able to have the back-office technology. So a lot of times we're thinking about the front end, the free mobile insurance, but the back end is really, really critical. And so what we're also seeing now is the ability to use mobile phones and mobile money in ways that help us to collect premiums, which is always a challenge. So we can collect premiums right from their mobile accounts. In some places, premiums are collected from their mobile airtime-- not even the money but the airtime.
Lesley Pink: It's deducted from their airtime?
Michael McCord: Right. Yeah. So it's really quite interesting. And so-- but with mobile money and mobile wallets, one of the benefits, too, is that we can speed up the payment of claims because we can just pop the money into that account. For example, if we have a hospital cash product, like we worked on in Jordan with Women's World Banking and the Microfund for Women-- that kind of a product-- the client gets out of the hospital, submits their invoice, and all we need to know is when they were in and when they left, and then five to seven days later they get payment. But the intention of the product is to pay for out-of-pocket costs and lost wages while the person is in the hospital or taking care of someone in the hospital. And so what technology will allow us to do is then to actually pay people while they're in the hospital, so that they have the money to cover those things when they would have had those losses.
Lesley Pink: So when they get out, they're set to go.
Michael McCord: Right, exactly. And so this is really-- it provides tremendous opportunities. The other thing to remember is that in order to make microinsurance work-- and work, I mean be profitable for insurers-- and we're talking fair profits, not massive profits-- in order for that to work, we have to do whatever we can to reduce administrative costs, and technology is helping us to do that, too, and this is really a critical piece, because if you can't-- if you're talking about the components of a premium, you've got basically admin costs, you've got claims costs, and you've got a little bit of profit, and then that's just gross, right? But if we're going to offer a product of value, we can't just cut out the claims costs. We've got to cut down on the admin costs. That's fundamental. And so we do a lot of work with insurers to help them cut down on their costs.
Lesley Pink: Right.
Michael McCord: Another aspect of technology that we've been seeing much more, particularly in Latin America, is that microinsurance is becoming more of a mass insurance, and the difference between mass insurance and microinsurance is that mass insurance is for everyone. So this is the insurance you have on your credit card or it's a warranty you buy with a piece of equipment. Anybody-- rich, poor, anyone-- gets that same product. And yes, there's value to everyone getting insurance, but the concern I have is that we end up moving away from focusing on the low-income market and moving towards saying, "Yes, we have products for everyone," but these products don't really fit the low-income market, and by considering this to be mass, and therefore by definition covering low-income people, that we lose that focus on low-income people and we just kind of move up the economic ladder, and I think this is a concern. We have to be very careful. And when we're talking about technology and even technology on the front end, we hear often about insurance that you can sell through mobile phones and mobile phone apps, but when we look at who has mobile phones in many of these countries, oftentimes it's not the low-income people. So then again, we have this potential to move out of that market into the upper market. And maybe in five years everyone will have cheap smartphones, but you've got feature phones and you've got basic phones, and that's what-- if they have them-- that's what most low-income people are using.
Lesley Pink: Are there specific regions within Latin America that you're seeing this more than others?
Michael McCord: In Latin America, we see this in-- certainly in Brazil, in Mexico, too, and it's very rife-- ripe in-- it's very prevalent in Africa and Asia, too. We see this very, very strongly, and we've got all this insurtech that we're talking about running on apps for phones that low-income people can't access, and so that's a real concern for me, and how we make sure to keep those people there. And additionally, what we see also is that there's an issue of touch. We can't expect low-income people, who have either no experience with insurance or a negative experience with insurance, which is very common-- we can't expect them to buy insurance based on an SMS or on some cute app that they don't even have access to.
Lesley Pink: So how do you educate people about the product?
Michael McCord: We work with people that are very close to the low-income markets. So these may be credit officers. These may be NGO people who are working in the area. It may just be people that are part of government administration. But people who have the language, but who are of a similar economic level as the people they're selling to, somebody that they can see as a peer. There's much more trust there, and trust is, of course, a critical issue of insurance. And so what we find is that, especially in the beginning, when people are first experiencing insurance, it's important to have some level of that touch so that people can ask questions, that they have a face, and when we find that there isn't touch, research that we've done shows that wealthier people will buy it, men will more likely buy it, people with more financial experience will likely buy it, which means the other side is that you get far fewer women, you get far fewer people who don't have any financial experience, and-- yeah.
Lesley Pink: Who is making the decision on buying insurance, these microinsurance products, in these countries? Is it a family decision? Is it a single person? How are these decisions made?
Michael McCord: Yeah. Typically when it's a group policy that people are buying into, typically that's women, because of all the women-focused groups. When it's individuals buying, it's oftentimes the men, because the men tend to have a much stronger voice in the household.
Lesley Pink: Obviously you do work all over the world. You're on the ground in numerous countries. But the MicroInsurance Centre at Milliman also does research, is that right?
Michael McCord: Yeah.
Lesley Pink: What is a recent research report that you've been working on that you'd like to talk about?
Michael McCord: So we just finished a landscape study of Nigeria, of microinsurance in Nigeria, and we've done these studies in 2005, '08, '11, '14, and now for '17, and one of the things that we found here is that microinsurance has actually declined in Nigeria, and now-- I was just there last week talking to all the Nigerian insurers and the regulator and the insurance association-- talking to them about, "What's happening here? Why is this happening?" And what we recognized is that there are a number of issues that are causing this. But having this information allows us an opportunity to then say, "We have a problem. How do we fix this?" And then we can come up with a strategy for fixing it. When we don't have the information, when we don't know, then everyone goes on as they did before.
Lesley Pink: This was a question I wanted to ask-- was very curious about. How many countries have you worked in, and what's the furthest country you've been to?
Michael McCord: I've worked in 75 different countries. I told my wife that when I hit 50, I'd stop.
Lesley Pink: Age 50 or 50 countries?
Michael McCord: Fifty countries. Yeah. But everywhere I go, I feel like I'm the luckiest person in the room because I get to do things that I think have real value for people, and I get to travel everywhere, and I meet such great people everywhere-- cultures, countries, everything. It's just really-- I've been lucky to be able to do what I've been able to do. And in terms of the furthest reach, I don't know-- rural China is going to be a bit far. Laos we've done. That was a bit-- it was, I guess, geographically far, but it was also much less developed when we were there. Yeah, I mean, we've been everywhere.
Lesley Pink: Sounds great. Well, I wish you good travels, safe travels, and thank you for joining us, Michael.
Michael McCord: Thank you very much, Lesley. Thank you.
Lesley Pink: You've been listening to Critical Point, presented by Milliman. To listen to other episodes of our podcast, please visit us at milliman.com, or find us on iTunes, Google Play, Spotify, and Stitcher. See you next time.