More than Remittances: Financial Management Needs of Migrants regarding Risk

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2 More than Remittances: Financial Management Needs of Migrants regarding Risk Presenting an innovative solution, developed with and for TRAFIM - an Transnational Family Insurance for Migrants 10 th University Meets Microfinance Workshop Frankfurt, 5 th of July 2013 Dr. Christiane Ströh de Martínez 2 von 28

3 Financial Management Needs of Low-Income Populations main purpose categories of financial management Life-cycle needs Emergencies Opportunities Complex mix of different financial arrangements is used Saving, borrowing & lending and insuring devices complement each other

4 Financial Management in Transnational Families Migrant/ remittance sender Migrant's family/ remittance receivers saving saving for family investment investment for family building social capital building social capital of family buying formal insurance buying formal insurance for family saving investment building social capital buying formal insurance Relying on increased remittances in case of calamity membership in informal insurance arrangement taking out loan membership in informal insurance arrangements taking out loan Source: Ströh de Martínez and Riester (2011)

5 Migration Framework to Risk Management For families in the country of origin, migration of its members represents - diversification of livelihood strategies - diversification of risk management Migrants are faced with - additional risks during migration and time abroad - high expectations from part of the family, particularly in case of calamity Are remittances and microinsurance substitutes or a perfect team? Source:

6 Remittances play various roles in migrants transnational families Migrants motives for sending remittances are a mixture of altruism and selfinterest. External shocks (like natcat) usually lead to an increase in remittances. Slight evidence that receiving remittances corelates negatively with having formal insurance cover (in the absence of insurance literacy training) Receiving remittances can function as disincentive to earn income and stimulate risk-taking behaviour. Remittances are recorded as current income, not as asset, in receivers mental accounts Source: Crayen et al. (2013); Ströh de Martínez & Riester (2011).

7 A Case for a Transnational Family Insurance? Migrants want to take care of their families Families expect migrants to take care of them Remittances are not an incentive for provision by the families themselves, knowing that the migrant will help in times of need Formal insurance gives migrants the opportunity to provide for their families. Additional incentive: it lowers their personal risk in case of calamities hitting the families back home Transnational Families need assistance for asset building Source:

8 Findings from other initiatives Formalizing The Informal Insurance inherent in Migration Challenges Legal and regulatory environment poses significant constraints to migration-linked insurances Undocumented status creates big challenges to insurance marketing in host country Lessons Learned Appropriate distribution channel is the key for outreach à linkages with organizations migrants trust (church, sport clubs ) Costumer support facilities must be accessible from host and home country Consumer education and financial literacy is needed Marketing insurance products directly to migrants may be more effective (divergent spending preferences of migrants and their families) Source: Powers et al. (2011) 12 von 28

9 Searching for a Solution: Pre-feasibility study to develop a TRAFIM prototype, commissioned by GIZ & MIPSS Philippines 9 von 28

10 Migration is a topic of national interest in the Philippines Labor Force: (Oct. 2011, NSO) Overseas Filipinos: (2011, CFO) (2011, NSO) Main destination countries: Saudi Arabia 22.6% United Arab. Emirates 14.6% Total remittances: USD billion (2012) GDP: USD billion (2012) Source: WB (2012), CFO (2011), NSO (2012), NSO (2013)

11 The dream of migration in the Philippines... Source: joyn-coop

12 ... which often ends with life stories from rags to riches to rags Source: joyn-coop

13 Field Study for developing a TRAFIM in the Philippines: Mission and Methods Focus group: Low-income families who have (temporary) migrants, or Overseas Filipino Workers (OFW), abroad à Families lives and livelihoods marked by transnationality à Importance of remittances for current and future household expenditures Objective: Analyze how a TRAnsnational Family Insurance for Migrants (TRAFIM) can be developed for lowincome Filipino migration households in order to improve risk management & asset creation Method: Interviews with institutions working for/with migrants, insurances regulators and insurance providers Focus groups with the target group Source: Ströh de Martínez and Riester (2011)

14 Findings: Challenges in financial management for migrants and their families I II III Income generation Current spending Prevision and Investment Migrants Vulnerability of income earning possibilities due to short and uncertain contracts Unsteady flow of income of either a lot or nothing Necessary spending abroad Significant spending with gifts for familiy and relatives Conspicious spending possible in moments of high income Mandaroty prevision only convering the migrant and his life and risk Insurance converage mostly only for time abroad Lacking comprehensive savings, investment and retirement for provision of after-ofw future of family Families Less incentives for own income generation Dependendly of OFW of income New consumption pattern introduced /conspicious spending possible, often important investment in housing Little Inventives for insuring the family and relates risks Significant investment in housiung and house utensils without insuring them Lack of own savings and retirement plans Lack of own productive projects Source: Ströh de Martínez and Riester (2011) 14 von 28

15 Main Findings OFW modern day hero - high level of national, institutionalised migration management including insurance for migrants during the time of their contracts Demand-side: Not only high level of vulnerability, but also a lack of provision and financial planning in transnational families ( from rags to riches to rags stories) Supply-side: Even with a variety of public and private programs and products, family members of OFWs are under-insured and so are the migrants after returning home/after end of contract. High relevance of improved risk management & sound asset creation for transnational families Source: Ströh de Martínez and Riester (2011)

16 The idea the prototype for TRAFIM Coverage should focus on protection of the transnational families assets from natcat (typhoon, flood, etc.) and/or specific personal risks of family members (accident, life) and support medium to long-term asset creation (savings for certain purposes like investment, retirement, etc.) Characteristics of TRAFIM: Bundled product including savings component Bite-sized product or airline concept Cash assistance instead of indemnification Accompanied by insurance literacy trainings Source: Ströh de Martínez and Riester (2011)

17 Home, Hybrid and Host model for TRAFIM? Home Model Insurance is marketed, sold and operated in the Philippines Possible clientele: migrant before departure and families in the Philippines Hybrid Model Insurance may be marketed sold and operated in both countries Migrants and their family members may be served directly in home and host country Host Model Insurance is marketed, sold and operated in the host country Migrant can be directly served abroad Source: Ströh de Martínez and Riester (2011)

18 Home model for TRAFIM in the Philippines ABCD Challenges Filipino insurance products Contract Premium payment Awareness - Who shows responsible financial management? - Financial literacy Decision to buy insurance Family purchases OFW purchases prior to departure Family pays using remittances OFW pays OFW pays Beliefs - Trust in insurance companies - Superstition Capture - Capture of remittances - Money transfer channels Distribution - Renewal of contracts - Distribution channels Source: Ströh de Martínez and Riester (2011)

19 Reflections & questions for discussion Remittances Should the focus be shifted towards transnational families instead of migrants? Financial inclusion of transnational families Which of the many initiatives of capitalizing on remittances for development have been successful? Which are the central topics for financial inclusion of migrants and their transnational families? Does our TRAFIM model for transnational family insurance & asset creation convince you?

20 Bibliography Collins, D.; Morduch, J.; Rutherford, S. and Ruthven, O. (2009): Portfolios of the poor: How the world's poor live on $2 a day, Princeton: Princeton University Press. Commission on Filipinos Overseas: Stock Estimate of Overseas Filipinos as in December 2011, available at _Stock_Estimate_of_Filipinos_Overseas.pdf Crayen,D., Hainz,C., and Ströh de Martínez, C. (2013) Remittances, Banking Status and the Usage of Insurance Schemes, The Journal of Development. National Statistics Office (2012): 2011 Survey on Overseas Filipinos, available at National Statistics Office (2013): Employment Situation in April 2012, available at Powers, J., Magnoni, B., and Zimmerman, E.(2011) Formalizing the Informal Insurance Inherent in Migration Microinsurance Paper No. 7, ILO. Ströh de Martínez, C., and Riester, A. (2011) Developing a TRAnsnational Family Insurance for Migrants (TRAFIM), commissioned by GIZ MIPSS Philippines. World Bank: Data, available at

21 Grateful for your attention Dr. Christiane Ströh de Martínez Dr. Andrea Riester (GIZ, SV Migration)

22 Back-Up

23 How to implement such a TRAFIM? Potential cooperation partners for the Filipino case Government agencies dealing with migrants Financial institutions (Banks, Microfinance Institutions, Cooperatives) Money Transfer Operators Migrant associations Insurance companies Insurance Commission Financial Supervision Body Legislative Department Development Cooperation Cooperation between local public and private sectors & development cooperation Source: Ströh de Martínez and Riester (2011)

24 Basics of TRAFIM Create awareness & transform beliefs Capture Remittances & reach OFW, their families (BOP) Offer adequate coverage Distribution of policies and payment Claim settlement & customer service Feedback and innovation Challenges Awareness of risk & future needs Image of insurance Address families or OFW before departure Offer attractive & relevant coverage How to reach OFW before departure (and their families) Fast and easy service Get relevant information from customers Our suggestion Target OFWs via established channels Offer voluntary add-on to CI Combine NatCat with life and savings Home model, marketing in the Philippines Insurance companies in coop. with placement agencies Start a pilot, counseling and monitoring by MIPSS Possible ways forward Financial literacy Public campaigns PDOS First step: target OFWs, then broaden to BOP Bundled product Bite-sized Familycoverage Start with migrants, move then to all lowincome families Build on successful experience by others Implement the pilot as an PPP Source: Ströh de Martínez and Riester (2011)

25 A model for a Transnational Family Insurance for Migrants (TRAFIM) Create awareness With migrants With migrant s family members Distribution of politicies Distribution channel and promotion Introduction into information system Challenge: Purchasing decision Payment International payment Contract management International client relations Challenge: Renewal Distribution channels and implementation partners can be similar to the existing compulsory insurance for migrants à New element: Awareness creation among FOWs family members à New challenge: Purchasing decision as not compulsory, additionally solidarity-based purchasing decision Source: Ströh de Martínez and Riester (2011) Claim settlement Claim communication Claim verification and settlement New interface in the transnati onal system Feedback and innovation Measuring client satisfaction Adaptation of product to clients (changing) needs New element compared to CIFOW à Claim is originated in the Philippines à Claim settlement with migrant or directly with insured family?

26 Next steps Further dialogue between organizations dealing with migrants and those dealing with insurance Identify areas for cooperation Mutual support in reaching own goals Cooperation between insurance providers and organisations working with migrants Develop insurance literacy modules Implement joint insurance literacy programmes TRAFIM-PPP between GIZ and insurance industry Develop insurance for low-income OFW families Market and sell product amongst OFWs Source: Ströh de Martínez and Riester (2011)