Controversy surrounds the usefulness of cooperation between development agencies and private companies. Advocates of «Public-Private Development Partnerships» (PPDPs) believe that thanks to the know-how and contacts of development players in the field, it is possible, with small government contributions, to steer considerable investments by big corporations into developmentally useful activities. Critics fear that the private sector's profit motive, for example in providing public goods such as healthcare, security and education, is at odds with the development needs of poor countries and is stifling local, home-grown initiatives.
Insuring the poverty of the poor
To cite an example, over the past 10 years, the Swiss Agency for Development and Cooperation (SDC) along with the Zurich, Swiss Re and Allianz Re insurance companies have developed a varied range of microinsurance products. Altogether some 100 million indigent people in the South are thought to have been insured against sickness, death, hailstorms, flooding or drought. The direct utility for individuals is convincing. Whether the product offerings from these insurance companies constitute a practical basis for sustainable development and legitimise the use of development funds is another question.
Varied product offerings
Life insurance is among the top favourites on the microinsurance market. As a rule, it is tied to microcredit loans and protects relatives from slipping into extreme poverty in the event of the death of the borrower. At a cost of some two US dollars per year for a loan of 70 to 100 US dollars, the costs are low. However, the policies are only valid during the term of the loan and cover only instalments still outstanding, plus burial costs if necessary. A new, more costly product combines life insurance with retirement savings and, in the event of the death of the main breadwinner, takes care of the children's education costs.
In India, Swiss Re, the World Bank and the Government have been jointly operating a sickness insurance scheme with 63 million policies for people living below the poverty line. The Government fully funds the policies and insures up to four persons per family for 12 US dollars per year. The insurance covers a fixed number of illnesses up to a maximum amount of 666 US dollars per year. According to Mario Wilhelm, a microinsurance specialist at Swiss Re, the government-guaranteed amounts per case have enabled private family doctors to expand the offer continuously and on a market-oriented basis. Accordingly, many regional private hospitals have been opened, and represent a positive addition to the public health system.
As of late, cheap agricultural insurances are offered to small farmers in many countries. They should protect them against the consequences of climate change and some other types of environmental damage. Because the costs of such policies are calculated according to the risk of the occurrence of damage and are very high, they are generally subsidized by governments. Under development cooperation programmes, however, cheap products are often made available without government participation. They do not insure against the full economic damage arising from a failed harvest but only the investment made in seeds and fertilizers obtained from a specific provider (for example for Syngenta products under a PPDP involving the World Bank subsidiary IFC in Kenya).
The motives of corporations
What is it that motivates global corporations to come to the assistance of the poor? It is not benevolence but the expected benefit to their image as well as the potential for new markets. For although the margins on microproducts for poor people are very small, there is the prospect of garnering huge profits based on the large numbers involved. Swiss Re for example anticipates a potential market of four billion customers. According to Mario Wilhelm of Swiss Re, another potentially promising profit source is the possibility, through microinsurance, of tapping into new markets for traditional insurance policies over the long term. Besides, microinsurance is only profitable thanks to the fact that the development costs are outsourced to public donors and there is no individualized settlement of damages.
Roland Steinmann of the Microinsurance Centre in Zurich confirms that private insurers are dependent on government cooperation for the purposes of tapping into new markets. Training, acquisition and operation call for much patience, a solid knowledge of the context and a high degree of trust on the part of the target clientele. Development cooperation players, and primarily those active in the field, already have these attributes thanks to their long years of involvement. Swiss Re's Mario Wilhelm adds that when it comes to contacts with governments, the good reputation of development organizations is decisive, as the introduction of insurance products often requires adjustments to national legislation.
Individual insurance policies or government networks?
According to the new message on International Cooperation 2013-2016, the SDC is keen to work more with large Swiss corporations in the future. Although the precise modalities are still vague, the SDC does seem to be aware of the risks of this type of cooperation. In a 2009 policy paper it undertook to support only those public-private development partnerships (PPDPs) that clearly reduce poverty, do not crowd out local initiatives and which have a distinctly positive impact on government institutions and their problem-solving capability.
This is precisely where the criticism of microinsurance comes in. Specialists from civil society complain that the poor are being fobbed off with second-class product offerings and questionable risk coverage. Individual policies, they claim, have the effect of making the poor personally liable for their situation and letting governments off the hook when it comes to providing sustainable social security networks and good public education and health systems. It would be illusory to believe that the growing global risks, with their above-average impact on the poor, can be privately insured against. Only redistribution mechanisms would guarantee that the burdens are fairly distributed across the whole society. Besides, the PPDP architecture makes no provision for any input from the people directly affected. Lastly, the private insurance approach would create new dependencies and weaken local networks such as seed associations and cooperatives, as well as family associations.
The SDC should take this criticism seriously in partnering with Swiss Re, Allianz Re and Zurich (see main article). Before entering into new partnerships it should work closely with local civil society to obtain and publish expert opinions on potentially negative impacts on government safeguard systems. Specifically, it should also clarify whether instead of the global corporations, it would not do better at encouraging local initiatives and traditional models. In that way it could prevent the emergence of new dependencies on players sitting in glass palaces far away in the North.
Article published in: Alliance Sud News No. 72, Summer 2012