Guarding the Poor from Falling through Microinsurance

By Ferdinand Sia

Ms. Ermie Mayor arrived at her mother’s house after making the rounds in Dayhagan Pilar, Balasan Iloilo. She sold a whole bilao (winnowing basket) of banana-que (deep fried bananas with caramelized sugar on stick) and bicho bicho (deep fried doughnut coated with brown sugar) that her mother prepared in the morning. She had been sweltering under the blazing afternoon sun while balancing a bilao on her head, stopping by the nearby school and houses to offer her mother’s special banana-que and bicho bicho. The whole week of toil left her with PhP 500 (US$ 11.46) in profits, barely enough to feed Ashley, her 4-year-olddaughter and Jun, her 6-month-old baby.

She badly missed Bonifacio, her husband, a skilled maker of furniture with specialty in beds and sofa. She had met him in Boracay while serving as an office assistant for a small firm when Bonifacio happened to be temporarily assigned in the beach area to make furniture for a building owner. After they were married and settled in Balasan, Ms. Ermie borrowed funds from Progressive bank to finance her husband’s furniture making trade. The bank extends microcredit based on the borrower’s capacity to pay rather than the existence of collateral. All of Progressive Bank’s microcredit loans come with a microinsurance product that covers the borrower and two dependents.

Bonifacio was fond of children and would have cooked good dishes for them. His income from making furniture would have been enough to spoil the family. But the past year changed Ermie’s family’s life forever: one stormy midnight in April 2011, Bonifacio rose from bed and stood above a portable urinal beside a wall. A lightning struck an electric post connected to the house’s electric switch located on the other side of the bamboo-mat wall where Bonifacio was standing. The switch blasted and pierced through the fragile wall, leaving a lifeless body lying on the floor.

The incident may seem like a fortuitous event but circumstances suggest that poverty is partly to blame for the fate that has befallen Ermie’s family. It was not the first time that a lightning flash resulted in casualty in Balasan area. The houses of poor people in Balasan are typically small bamboo huts with walls made of soft materials such as bamboo columns or sawali (tightly-knit bamboo mat). The socio-economic situation surrounding their community has fostered the unsafe practice of locating an electrical switch in proximity to humans. As a result, it has become more common for such accidents to occur in poor areas such as Balasan.

The same observation can be made for other poor areas in Iloilo. Among Progressive Bank’s microfinance clients, a family lost a mother who had had a long history of mild stroke because she had stopped taking her daily medication due to shortage of money. On the other hand, a number of the bank’s clients covered by microinsurance have been treated for dog bites. Ubiquitous stray dogs subjected dog-bite victims to a string of anti-rabies shots. Likewise, the motorcycle accidents are common in Balasan because of the unpaved slippery roads in rural poor areas (Motorcycles serve as a low cost means of motorized transportation in Balasan). These incidents would be rare in middle class communities.

The microinsurance product being offered through the bank in partnership with an insurance company is designed as a low cost insurance policy suitable to the needs of low income people. Microinsurance distinguishes from traditional insurance by its limited claim exclusions, absence of customized underwriting, and simple registration procedures. These features allow the product to be offered at low cost and make possible the quick registration and claim processing. Thus, for a PhP 300 (US$ 7.00) in premium, a policy holder and two dependents will be covered with life insurance benefit of PhP 60,000 (US$ 1,375.52) for the policy holder (PhP 30,000 [US$ 687.76] for dependent) and medical reimbursement benefits for a period of 6 months.

For all the society’s shortcomings, microinsurance has done its part to provide a needed safety net for low income families in Iloilo and elsewhere by protecting them from falling deeper into poverty. Limited assets make poor people unable to protect and recover from disasters. In the absence of microinsurance, poor people resort to borrowing from relatives. When the borrowed funds are substantial, it would take years for a low income borrower to repay the loans from the lenders. In the meantime, permanent impairments would become more likely to occur and would send the family further down into the poverty cycle— children would stop attending school and critical illnesses requiring relatively expensive treatment would remain untreated. With microinsurance, however, the family would be guarded from unmanageable debt, and thus allow family members to move forward with life.

Ms. Ermie and her daughter have since moved to her mother’s house after the incident. In September, Ms. Ermie gave birth to her son Jun. Jun subsequently contracted pneumonia and was treated in a hospital. Her scant income alone could not cover the hospital fees for child birth and treatment for disease. Fortunately, she had some money left from the PhP 30,000 (US$ 687.76) proceeds of the insurance claims, and Jun is now free from the clutches of the life-threatening ailment.

In a few months Ashley will be starting her formal schooling. Now at 27, Ms. Ermie has decided to return to employment as a secretary to receive better income to support her growing children. Without the burden of debt, she is now free to start a new life. When asked whether she will consider marrying again, she replied: “I won’t consider yet (since children are my priority). But who knows when my heart starts to beat again.”

A participating bank of the USAID-supported RBAP-MABS program, Progressive Bank services more than 20,000 active clients through its 3 branches in the province of Iloilo. The bank has, in total, served more than 55,000 new borrowers and disbursed over 160,000 loans worth PhP1.3 billion. Ms. Ermie Mayor is among these borrowers that have been given a chance to access bank services to improve on life and protect her family.