It's taken 40 years of experimentation, but in the Philippines, a unique business model has found a way to sell life insurance hand over fist to poor people.
The country's "mutual benefit associations," a study released last month shows, have soared in popularity by competing with commercial insurance on benefits and joining themselves at the hip with microfinance lenders.
MBAs are a breed of nonprofit insurance broker created by presidential decree in 1974. Today, two mutual benefit associations insure 7.5 million members of the rapidly growing Philippine life microinsurance market, charging premiums of less than $10 per year, according to the report by the Gates-funded Microinsurance Learning and Knowledge initiative.
It adds up to increasingly big money. All told, the five companies covered by the report—including three smaller firms that don't use the mutual benefit association model—saw their gross premiums grow 135 percent from 2008 to 2011, to $46 million.
The number of covered lives grew 145 percent over the period, to 10.5 million.
In the Philippines, the report wrote, "MBAs thrive." Thanks in part to a system under which they charge high up-front premiums but refund half of that money to members after several years of participation, the Philippine mutual benefit associations "appear to be very well (even overly) capitalized."
Their secret? To get a loan from their affiliated microfinance institutions, you have to buy a life insurance policy.
But that doesn't mean Filipinos are buying the policies against their will. Rather, evidence suggests that once buyers are exposed to the policy, they see it as one of the benefits of MFI participation. It's a natural fit, after all: If a breadwinner who's built a business on years of microloans dies, life insurance leaves the family with cash to keep afloat.
Michael McCord, who co-authored the life insurance study, said in a September interview that because microfinance institutions develop strong brands among their target customers, they make perfect partners for microinsurance sales.
"If you step back and think about insurance, insurance is a business of trust," McCord said. "Pretty much wherever I go, people start out not trusting insurance."
But in poor countries, McCord said, MFIs have usually built up goodwill to spare.
"They said, 'You come every week to this training session, and after four weeks we'll give you a loan,' and they did," said McCord, president of the Wisconsin-based Microinsurance Centre.
This seems to give mutual benefit associations a huge advantage over for-profit, independent competitors like The Philippine Prudential Life Insurance Company, which entered microinsurance in 2010 and has failed to achieve rapid growth despite setting prices far lower than the mutual benefit associations for comparable coverage.
But though mutual benefit associations don't seem motivated to compete on price, the new study found, they seem to be responding to market pressures: McCord's study found "anecdotal evidence of microinsurance competition among mutual benefit associations, and between mutual benefit associations and commercial insurers, based on the overall components of the products."
The study authors plan to release a "more comprehensive" report in "late 2013."
The mutual benefit associations of the Philippines aspire to sell their life insurance on the commercial market, too. They've had little success so far -- though that can easily be chalked up to government regulations that forbid mutual benefit associations from marketing to anyone other than MFI members and their families.
But whether or not the mutual benefit associations can successfully expand out of their MFI incubators, people around the world looking for ways to sell life insurance to poor families should consider booking a trip to ground zero: Manila.