Reducing the vulnerability of grass-roots people in Papua New Guinea: Delivering microinsurance in a particularly challenging environment

  • user by MSC
  • time Sep 26, 2013
  • calendar 3 min

PNG is a challenging country to offer any financial service, let alone insurance. Oliver Ullrich shares his experience of delivering microinsurance in a particularly challenging environment.

Papua New Guinea (PNG) has one of the lowest insurance penetration rates in the world. According to Bank of Papua New Guinea, less than 5% of PNG’s 7 million people have insurance of any kind. Nationwide Microbank (NMB), the South Pacific’s largest microfinance institution, and Pacific MMI, a leading national insurance company, have entered into a partner-agent agreement to launch MiLife, the first microinsurance product in PNG, and the first mobile microinsurance scheme in the South Pacific.

MiLife is the first formal insurance product specifically designed for low-income households in PNG. NMB developed MiLife after extensive market research supported by the Pacific Financial Inclusion Programme (PFIP). Qualitative and quantitative research on existing risk mitigation mechanisms was carried out at a national level to inform the product development process. Focus group discussions identified financial risks that challenge life and livelihoods of the target population and assessed the shortcomings of existing risk mitigation practices. Consequently, MiLife was designed to protect families from the financial burdens following the unexpected death of a family member. Traditionally, during the mourning period, or hauskrai, extended relatives (Wantok) show up—sometimes by the hundreds—expecting to be fed and housed. Funeral costs often oblige the family of the deceased to borrow money or even sell assets, having devastating, long-term negative effects on a household, particularly if the deceased was a breadwinner.

MiLife is marketed as an NMB product and is distributed through it’s growing network of bank branches and mobile banking agents. The one-year term life insurance product covers both husband and wife and is offered in combination with the NMB operated mobile banking service MiCash in return for a competitive one-time upfront premium payment. Registration and initial claims verification is also carried out by specifically trained NMB staff in close cooperation with the insurance partner. The mobile banking service allows premium payments to be made via the mobile money channel. Benefit payouts can be made directly into the MiCash bank account and cashed at any NMB branch or village banking agent.

Tony Westaway, managing director of Nationwide Microbank, says: “Despite the widespread informal support systems (wontoks), we have found that our clients struggle to deal with the financial consequences of shocks to their lives. We believe that MiLife reduces the vulnerability of our clients and gives them peace of mind to invest in a brighter future. The mobile money aspect is an added benefit. People no longer have to travel vast distances to the bank branch, but receive the money directly into their mobile account. For many of our clients, MiLife is not only their first insurance product but also their first real bank account. Although insurance is a new concept to most of our clients, I believe we will see a positive response to this new product.”

PNG is a challenging country to offer any financial service, let alone insurance. Speaking 850 different languages and holding strong tribal alliances, the vast

majority of people still live as subsistence farmers in traditional societies. More than 85% of the people work in the informal economy and lack access to formal financial services. Transport infrastructure is nearly non-existent, the geography is challenging, financial literacy is low and the crime rate notoriously high. While the recent arrival of mobile money promises to overcome some of the daunting distribution hurdles, appropriate client education and establishment of cost-efficient processes to service the low-income market will undoubtedly be a challenge for NMB and its insurance partner.

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