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Proposed by: Laura Boudreau
Contact (name, email, phone, skype): lboudreau@worldbank.org, 908-601-8539
Best way and times to contact during RHoK 2.0 Dec 4/5 2010: Cell phone: 908-601-8539
Being worked on in Toronto, Canada by Ian Hopkins (i.hopkins@syncapse.com) and Daniel Broome (dgbroome@gmail.com +1 905 925 0158), and in New York City, USA by Sandeep Chandur.
Insurance markets are weak or nonexistent in most developing countries. One oft-cited reason for low insurance penetration is the high cost of administering policies (which often cover very small amounts). One innovation to lower administration costs has been the development of parametric insurance products; unlike traditional insurance settlements that require an assessment of individual losses on the ground, parametric insurance relies on an assessment of losses based on the intensity of an event (e.g., wind speed, ground acceleration). The administration costs of parametric products could be further reduced and the experience of purchasers improved through the development of software that enables immediate payment of claims when the intensity index is triggered (i.e., an event meets the minimum requirements to provide a payout to policy holders). This payment can be made through cell phones.
In September, 2010, an agricultural insurance pilot in Kenya provided payouts to over 100 farmers via cell phone following drought conditions (see links below). The payment system allowed for the farmers to receive payment in less than two weeks after the contract period ended, a very fast payout rate (insurance programs in developing countries often suffer from delayed payouts, which reduce participation in the schemes). Payout via phones also avoids problems with middlemen, cash transport to remote areas, etc.
Problem: A NGO has partnered with an insurance company to increase property-owners access to catastrophe insurance in a country exposed to significant disaster risk. The insurance company has designed a parametric product that can be offered to property-owners. Payouts are triggered if wind speed during a storm surpasses a certain intensity. The premium rates in the program vary based on location and construction type, but calculation of payouts follows the same formula. The NGO is concerned, however, that uptake will be low; there was an indemnity-based program in the area a few years earlier, but slow and faulty claims processing resulted in the populations’ rejection of the scheme. Solution: The program requires a system that will enable payouts to policyholders to be made quickly and directly. Software that connects the calculation of payouts and transfers payments through cell phones to policyholders will be able to cut back on the time required to get payouts to policyholders as well as resolves distribution problems.
The input system for when the tool will be used following a disaster must be very simple and allow for immediate deployment of the payout to policyholders. The system must be easily adoptable for both mobile providers and insurance companies. It will need to be able to match payout with policyholder, so that each policyholder gets the correct payout. It will also need to be very low cost to administer.
This system could heighten insurers’ interest in the purveying insurance products in developing countries. If this system is designed to be easily adaptable across insurers and mobile providers, there is an opportunity for it to be widely developed.
Background on Kenyan insurance pilot adopting a payment mechanism through cell phones: http://www.syngentafoundation.org/index.cfm?pageID=562 http://www.eurekalert.org/pub_releases/2010-09/bc-rst092010.php http://www.weinformers.net/2010/09/21/7327/
Github project: Payout2Mobile project
The SMS provider: SMS provider
Diagrams: Collaboration and flow diagrams
This work can be taken to real world users through a variety of organizations, including, but not limited to, the World Bank Group, international insurance companies, and NGOs working in this field.
Use case diagrams, discussions, examples