Lessons Learnt the Hard Way (CGAP Working Group on Microinsurance Good and Bad Practices Case Study No. 6)

Publication Date: Jan 2005
Published by: CGAP Working Group on Microinsurance
Document Type: Case Study (PDF)

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How to identify the worst practices in micro insurance?

This paper attempts to document worst practices in micro insurance, from among its members and the insurance industry at large. Some of the questions that need to be asked are:

• How can one attempt a catalogue of things gone wrong in insurance companies?
• Are worst practices just reverse mirror images of best practices?
• Are worst practices an extreme absence of best practices?

In answering these questions, the paper creates a framework of the insurer’s vulnerabilities, with real-life examples of things going wrong. To make sense of what went wrong and how and why, each part of the framework describes the function and its best practice.

The paper states that:

• Insurance company failures are the result of a complex interaction of risks; they are not mono-causal, rather a mix of various causes and effects.
• Management is the root cause of failure in the majority of cases, may be through incompetence, ignorance or through malfeasance.

Nine companies have been chosen for the study. The paper has strung them in four chapters, along the thread of setting up, organizing, operating and leading an insurance program, as follows:

• How the insurer serves its purpose?
• How the insurer is organized and managed?
• How insurance works financially?
• How the insurer is governed?

Each chapter begins with a list of “pitfalls” and ends with “signposts” to help keep insurers on track.

The paper concludes that “it is better to learn from the mistakes of others than to repeat mistakes already made”.