Microinsurance can shield micro borrowers from debt trap

"You will not turn bankrupt because of buying insurance but you will cause your loved ones to turn bankrupt if you don't", Jack Ma. Unarguably, microfinance has been the most effective tool in the fight against poverty. Over the years, it has lifted millions of rural Bangladeshis out of poverty. However, certain aspects of the MFI sector in Bangladesh needs to be reinforced to provide better protection against the poverty trap for the impoverished and that is where a handshake between microinsurance and microfinance become crucial. A significant number of borrower households become indebted and more vulnerable due to the sudden death of a family member (borrower/spouse). To shield themselves and their livelihood from such fallout, borrowers have become more inclined towards microinsurance.

Microinsurance is designed to help more people buy insurance coverage who were previously unable to afford it. It provides poor and low-income households with the means to protect themselves against the effects of risk. Despite substantial growth in the insurance sector over the past decade, penetration still stands at a mere 3% - 4% in Bangladesh; necessitating a massive need for overhauling. In such a situation, the progressive insurance companies have a pivotal role to play in developing this industry along with regulators and other stakeholders.

The visionary entrepreneurs of BRAC, Square Group & Apex Groupin such a situation joined hands and decided to do something for sector reformation; thus Guardian Life InsuranceLimited (GLIL) was born and started the journey in 2014. Since its inception, GLIL always tried to challenge the status quo and introduced new business models. Leading the industry with a paradigm shift is what GLIL is known for. Being the fastest growing life insurance company of Bangladesh, "Best group insurer" and a facilitator of "financial inclusion" &"Insurance for all", GLIL has undertaken a micro-insurance initiative that is ushering a new era in the sector. The initiative has been acknowledged by multiple local and international authorities which included the AsianBanking and Finance. They bestowedGLIL with the prestigious InsuranceAsiaAward in 2017 for this initiative.

GLIL aspires to work diligently towards financial inclusion and touch the lives of the underprivileged population with the spark of life insurance as it has a starkest implication on the lives of this economic group. In line with the idea, GLIL has tried to work out on innovative models of microinsurance that can prove to be sustainable.

GLIL made a breakthrough with guardian-BRAC Bima (GBB), under which 5.6 million insured borrowers of BRAC Microfinance came under the scope of GLIL's credit shield micro-insurance programme (including spouse). BRAC is the largest NGO in the world, among their microfinance clients GLIL ensured the insurance protection, on which 83% are female. After going through some pilot phases, Guardian-BRAC Bima (GBB) was fully launched in 2017. The entire scheme was developed in partnership with BRAC to ensure it meets the needs of the community. It was enhanced so that the spouse of the borrower could also be covered, as in most cases; the spouse of the borrower inherits financial responsibility of the family and repayment of the debt incurred.

Expanding Through Innovation

With the synergy of innovation, resources and BRAC's immense infrastructure, GLIL has been able to reach out and transform millions of impoverished lives across Bangladeshthrough microinsurance. GLIL, in partnership with BRAC Microfinance, tried to develop a proposition that could meet the needs of the community. Promoting this scheme through a trusted intermediary had instant benefits; the initial takes up rate skyrocketed to 61% in 2016 and 76% in 2017through voluntary participation. Partnership with BRAC gave the scheme significant reach as it increased from a mere 650 branches at the end of the pilot scheme in 2016 to a staggering100% coverage (currently 2606branches) across the whole BRACnetwork within 10 weeks. GLIL has worked in two folds when it comes to the operations management and efficient claim processing, delivering on both quantity and quality. GLIL also introduced BRAC Guardian Bima WebPortal to drive effectiveness and efficiency in claim processing.

Overcoming Geographical Barriers

Partnership with BRAC has enabled GLIL to spread across the country, reaching over 5.6 million borrowers, empowering them through microinsurance, which spans over 10 million lives. Under Guardian-BRAC Bima(GBB) project, an insurance company for the first time in the country has fully utilized the aggregator's (BRAC)infrastructure (2606 branches) to provide instant and quality service.

Win-Win-Win

The GBB project has the combining factors to benefit all the stakeholders involved. It insulates BRAC Microfinancefrom having to write off loans in the event of the death of the borrower. At the same time, GBB shields the borrower's family from falling into a debt trap after the sudden loss of a family member. The premium pricing is calculated by an accredited professional actuary, ensuring proper risk assessment and enabling a low cost and financially viable scheme. Finally, GLILreaps the benefits of serving and massive client base, earning an amount ofTk6 billion ($71.2 million) till May 2021from premiums. Residual profits from the scheme are shared with BRAC, providing them with a new income source.

The beneficiaries of a policyholder under the Guardian-BRAC Bima(GBB) program are entitled to on-the-spot cash benefit (funeral benefit)upon claiming to help them deal with the initial trauma. GLIL takes about five business days for processing and settlement, which is the best in the industry.

Efficient Claim Handling

GLIL has also been very keen to payout claims diligently as this is a great responsibility in terms of insurance sector development and branding. Currently, the claim payout ratio of GLIL is 99%, which is comparable to international standards. The payout of the funeral benefit enables members of the micro-community to see tangible evidence that life insurance works as payments are made immediately to the claimant, whilst the debt is settled at the institutional level directly between GLIL and BRAC. GLIL is bringing financial independence to the segment of the population that was previously considered to be uninsurable for being too poor. After submitting a claim, the insuree can view the claim status anytime from GLIL'sweb portal.

GLIL ensures a smooth claim process handled by a very efficient and communicative team of claim officers; documents can quickly and easily be submitted via BRAC Guardian BimaWeb Portal.

This entire venture has resulted in 92,153 claims being settled with Tk4.2billion ($49 million) paid out to date. However, the numbers alone can not justify the magnitude of GLIL'sachievements. They are protecting millions of poor families and their livelihoods across Bangladesh in the event of a death of a household member or the earner. Microinsurance is an important safety net against various risks for the poorest and most vulnerable people of Bangladesh. Guardian-BRAC Bima (GBB) is playing a significant role in keeping millions of Bangladeshis above the poverty line and help them to flourish despite the loss of a crucial family member.