Micro-insurance: a new development tool for social protection?
  • January 11, 2012

The Ministry of Economy and Finance (MEF) together with the Council for Agricultural and Rural Development (CARD), with the support of the United Nations Development Programme and the UN Capital Development Fund, convened a national workshop on micro-insurance and social protection. The event was opened by H.E. Ou Bunlong, Secretary of State, Ministry of Economy and Finance. H.E. Ngy Chanphal, Secretary of State, Ministry of Interior, and Vice-Chair of the Council for Agricultural and Rural Development delivered a keynote speech. The workshop was attended by over 60 representatives of the micro-finance sector, private sector, non-governmental organisations, government bodies and development partners.  

Micro-insurance is a new emerging industry in the financial sector that has been in action worldwide ... and especially in the ASEAN region” said H.E. Ou Bunlong, Secretary of State, Ministry of Economy and Finance.

But what is micro-insurance? Essentially, it is insurance accessed by low-income population and provided by a variety of different entities and run in accordance with generally accepted insurance practices. This means that the risk insured under a micro-insurance policy is managed following insurance principles and funded by premiums. It covers a broad variety of services including, life insurance, health, invalidity, cattle breeding, crop and asset insurance.

Although the recent Cambodian National Social Protection Strategy (NSPS) does not make any explicit reference to micro-insurance, it recognises that access to insurance, whatever its format, is an important strategy for expanding social protection. The inability to manage the risk of vulnerability caused by the sudden death of a family member, illness, loss of income or property can increase social insecurity and perpetuate poverty. Financial markets and insurance services in particular, can play an important role in mitigating welfare losses resulting from the occurrence of such risk events. The use of insurance also provides a catalyst for economic development in low-income communities.

To date, the Cambodian government has introduced a micro-insurance policy together with a legal and regulatory framework for administering the industry. Following the example of the Philippines, the Cambodian Ministry of Economy and Finance issued in June 2011 the Circular on Temporary Licensing of Micro-insurance.

Many of the discussions that took place during the workshop further reinstated the potentials of micro-insurance in reducing the vulnerabilities faced by the Cambodian poor. Micro-insurance is internationally recognised as a subset of social insurance and presents similar traits to community based health insurance. Moreover it straddles the space of ‘formal private systems’ and community-based health insurance systems within the social protection framework. In many aspects, and especially in the Cambodian context, micro-insurance can be understood “as an effective market-based strategy to protect poor and vulnerable groups who do not benefit from participation in formal social security systems” affirmed UNDP Country Director, Elena Tischenko.  However, she stated that “promotion of micro-insurance requires careful planning and learning from experiences of other countries ... the design of an appropriate regulatory framework and a nurturing environment for the sector to develop, would be equally critical for the success of such schemes in Cambodia”.

While the presentations and discussions in the morning sessions reviewed international best practices in micro-insurance and social protection, the debates shifted towards key steps ahead in the Cambodian context. Practitioners and regulators agreed that all actors working in the micro-insurance industry, from regulators to service providers and distributors, need to better understand the workings of the sector and how to effectively collaborate.  Key stepping stones for the future include:

  • consumer education to enable people to better understand the value of micro-insurance, helping expand demand and encourage the industry to respond with appropriate products;
  • greater awareness and education of key actors in the micro-insurance supply chain, including regulators, to expand the knowledge and skills of key actors to develop and effectively manage the expansion of micro-insurance at the retail, support service and policy levels;
  • national diagnostic on the micro insurance sector including both detailed assessment of demand and supply issues that need to be addressed, allowing the government, development partners and retailers to have greater confidence in developing appropriate strategies, prioritising action plans and allocating resources and investments.

This workshop deepened the dialogue between MEF, CARD, non- governmental organisations, the private sector and development partners. It constitutes a significant advancement in developing an effective way to target better limited resources available and build sustainable financing to help the poor cope with external shocks, promote human capital, improve productivity and promote sustainable economic growth.  The experiences and lessons shared during the event will be synthesized in a forthcoming report on the proceedings, outlining key ways forward in building the micro-insurance sector in Cambodia.