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MetLife Explores Microinsurance

By Felipe Botero, Julia Taylor Kennedy | July 12, 2010

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JULIA TAYLOR KENNEDY: You are listening to an installment of the podcast series Advocates for Ethics in Business.

I'm Julia Kennedy, sitting here with Felipe Botero.

Botero is a vice president at MetLife Insurance. Day to day he develops insurance for retiring Baby Boomers, but he's also taking on the enormous responsibility of putting together micro-insurance products for MetLife in the developing world.

In 2009 Botero received a First Movers Fellowship from the Aspen Institute, a program focused on integrating profit and social value.

Felipe Botero, welcome to Global Ethics Forum.


FELIPE BOTERO: Thank you, Julia. Thank you for having me.

JULIA TAYLOR KENNEDY: These two parts of your job description which I just mentioned, retirement insurance and micro-insurance for the developing world, seem very far apart on the spectrum of insurance products. How did you become an expert in these two areas?

FELIPE BOTERO: They do seem different today, Julia, but actually there is a a common origin to these two. To find it, you have to go back actually to the 1800s, to the birth of insurance.

In the mid-1800s insurance became mainstream. Before that it had been almost like a lottery that was run for the very wealthy and in very selective circles. In the mid-1800s there was a movement to provide insurance products to the working class, to the laborers in the factories. It actually started in England, but we Americans are good at copying others, and took their idea and implemented it here.

It really caught on, to the point that MetLife started in this area in 1879. Within 30 years, MetLife was the largest life insurance company in the world, selling insurance to the working man and woman and collecting the premiums door-to-door, nickels and dimes every week.

The insurance industry became part of the fabric of the community and helped these families that were poor working people, to build a nest egg and a future for their children.

The insurance industry contributed to that, in a sense, because not only did it provide the vehicles for financial security, but it also provided education and a lot of other means for that growth to happen.

At the same time, the insurance industry also provided a lot of investment capital for the growth of the economy, of the infrastructure—the cities, the railroads, the roads, the utilities—those long-term investment projects that really no other industry is looking for.

The reason the insurance—and when I talk about the insurance industry, I'm talking about life insurance and retirement savings, retirement products—the reason that the insurance industry is so focused on the long-term, infrastructure-building type of projects is that they are really the best type of investments to make for the kinds of liabilities that we write.

When we promise to pay your retirement pension for the rest of your life, that could be a 30-year or 40-year commitment. What we need to do is find as an industry investments that match that liability. The best investments are real estate, developing cities, and developing infrastructure.

So that's how MetLife and how the industry is a part of the growth of the economy.

It really is a win/win/win situation. It's a win for the client, it's win for the company, and it's a win for society.

JULIA TAYLOR KENNEDY: I'm curious. I had a course entitled "Business in the Developing World." Part of what we looked into was this idea of micro-lending and micro-insurance. I have a couple of questions about it.

One is: How can micro-insurance products help bolster what micro-lending is trying to do in the developing world?

FELIPE BOTERO:
You and I have a lot in common already, because that's how I got started with this whole idea of micro-insurance. I was taking a course in finance and we had a lunchtime speaker who was from a micro-finance organization. She was a dynamic personality, and really just laid out the whole idea of micro-finance and micro-lending. It has been around for about 30 years or so, but it was totally new to me. This was about ten years ago.

However, I made an instant connection with what we do at MetLife. So I followed up on it. We started to do some research and met some other people who were also interested in this. A very early developing type of idea.

So it did come from micro-finance and micro-credit. In fact, that has really been the launching pad for micro-insurance, because the micro-finance organizations already have the networks with the low-income segment that we're trying to reach.

It has been a great partnership. In the areas where micro-insurance has really been successful so far, it has been a partnership with the micro-finance organizations.

I call them micro-finance organizations, but they have been mainly micro-credit up until now.

JULIA TAYLOR KENNEDY: Right.

FELIPE BOTERO:
Now we're talking about adding risk management products, like insurance and also savings products for both short-term and long-term savings. To me this is the most important thing that we as an industry can add to the people in these economic segments. This is because of their ability to collect, to grow large sums of money, to make the kind of transformational investments or expenditures that they need, like housing and education and retirement pensions, which is not easy to do. It's not easy to do for you and I, much less for somebody who is trying to make ends meet and put food on the table each and every day.

So the idea of contributing and providing some vehicles for doing that is really exciting. It just captivated me, and I have been working on that ever since.

JULIA TAYLOR KENNEDY: What regions of the world are you working in and where is it being most successful? You mentioned where there are established micro-finance organizations, but where are they?

FELIPE BOTERO:
I think the first marriage between micro-finance and micro-insurance really came out of East Africa, in Uganda. That's where the model came from. It's pretty widespread in sub-Sahara Africa, where micro-finance has traditionally also been very strong. Now it's in all parts of the globe, but mostly in emerging economies.

For MetLife it has been mostly in Latin America and in Asia. India, China, Brazil, and Mexico are big growth markets that MetLife is in today. However, we do have some plans to grow. Eastern Europe and the Middle East are also important markets for us in the future.

Africa will come, but not quite yet.

JULIA TAYLOR KENNEDY: How important is education in this process? Micro-finance organizations exist in these certain communities, but insurance is a whole other concept, because I think a lot of these cultures have informal insurance networks already set up. So what is the education process like to say "a formalized system might work better for you"?

FELIPE BOTERO:
That's a great question, and great insight too. What a lot of people don't realize is that the low-income segment have risk management techniques. They're not products; they're techniques, they're ways of managing their income. For example, a woman might purchase jewelry as an insurance in case her husband is not there.

JULIA TAYLOR KENNEDY:Then stash it away in the mattress.

FELIPE BOTERO:
Exactly.

Or they might join a savings club with another ten or 12 people in the neighborhood that they can all contribute to, and then they pay it out once a year, and they make loans to family and friends. These are all means of saving and self-insuring.

The problem with self-insuring is that it's pretty inefficient at that level. If you're very wealthy, you can self-insure. But if you're not, then what you really need to do is be able to pool your resources and money with others.

Informal means of doing that are fraught with peril. They are inefficient, and you hear so many horror stories.

JULIA TAYLOR KENNEDY: What if someone robs your jewelry?

FELIPE BOTERO:
Or there's a fire and everything is lost.

Formalizing the risk-management products that are available, this whole idea of protecting your down-side, is really what micro-insurance is all about.

How important is education? It is key from every aspect. It's important to have education for the clients because they need to understand what they're paying for.

We find that a lot of people will pay their insurance premium and then at the end of the term of this insurance they want their money back because they didn't die. "I didn't need it. I didn't use the product."

JULIA TAYLOR KENNEDY:
Right.

FELIPE BOTERO:
So we have to educate people even in that basic sense.

You also have to educate the regulators and the government officials, because there has to be that infrastructure there. It has to be well-managed, otherwise it's not a win/win/win, right?

From the standpoint of the insurance companies, education is very important, because that's how we get to improve our risk, our underwriting results.

Just to give you a quick example of that, suppose I sell you and 100 other people an insurance policy. There's a certain risk based on having—let's say it's fire insurance—on having a fire.

But then, let's say, I have a program that I come out to your home and I show you what are some of the things you can do for fire prevention, and I do that with all my customers. All of a sudden, I have less fires to worry about and to pay out on.

So from an insurance company's perspective, education is a core value.

JULIA TAYLOR KENNEDY: So clearly you are very passionate about issues of micro-insurance and have thought a lot about it.

First, you said you thought of it when you were taking a course, but then how did you get MetLife onboard? Did they come to you? Did you come to them? How did that come out of this?

FELIPE BOTERO:
Well, it's not a done deal. It's one step at a time. I have been getting more and more traction over the years. And we have products in India, Brazil, Mexico, and Chile. But, honestly, it has been kind of a pilot.

In India, actually there was a regulation where you have to provide a certain amount of your business to the rural and social sector. So we have products specifically designed for the rural and social sector.

However, regulation doesn't always work the way it's intended to work. What happens is people fill their quota and stop there.

JULIA TAYLOR KENNEDY: Right.

FELIPE BOTERO:
So that's not the silver bullet. And I don't know if there is one.

So far MetLife has done some things, but I don't think they have fully committed to it. So my struggle continues.

I find a lot of different ways of getting the company to listen and to get exposure. Slowly but surely I'm building a network of converts who believe, and it's starting to build momentum.

A year and a half ago the Aspen Institute invited me to do a fellowship with the Business and Society Program. That is a great program to help entrepreneurs who are starting and want to build business models that have a social impact and where the companies aren't necessarily receptive to it right off the bat. And it is a fellowship, so that you help each other as well.

In the past year and a half at the Aspen Institute, I have gotten more traction and more results than in the ten years before that.

JULIA TAYLOR KENNEDY: What you're telling me is something that I hear time and again from all of the subjects of these interviews that I'm doing in this series Advocates for Ethics in Business. There is the personal vision and then there's the organizational vision, and being an advocate often means being an advocate within your organization.

So I'm curious. Through this first-movers fellowship, what did you develop as your ideal? That this is the role that a corporation or a business like MetLife should be playing as it's doing business? It's a big question.

FELIPE BOTERO:
Yes, that is a big question.

First, I started with what's my role. That's what the Aspen Institute program helped me to define.

Before I was trying to tell people what the solution should be: "This is the problem, this is the solution. It's plain to see. It's obvious." I wasn't getting a lot of receptivity from that.

I think the Aspen Institute asked me to change my story into a conversation and to build more of a question-and-answer approach, so that people now participate in the designing. We always come to the same answer, although some people you have to push.

JULIA TAYLOR KENNEDY: But the path is different.

FELIPE BOTERO:
But now I have a connection. I have a buy-in. I think that's been the big difference.

What I think has happened is that MetLife's role in this needs to be one of an innovator and a thought leader. We can't go in and do the same thing that others are doing and that's now a commodity in the marketplace—and there is one, Credit Life. Most of the micro-finance organizations in the world offer Credit Life along with their loan. You take a life insurance policy to pay the loan, and maybe the funeral and a little bit left for the family.

But that's old news. It really isn't the big win/win/win. It's a starting point and a place to get a foot in the door.

What we're working on now with MetLife is this idea of completed savings. What that means is that if a person makes a commitment to a savings goal that may require ten, 15, 20 years of savings in order to achieve their goal. If they complete the savings period, they have what they sought and have reached their goal.

If something happens to them in the middle—a disability, a death of an income earner, something that's very serious like that—then the insurance company completes the savings plan and they have what they sought.

That's the idea that we're putting out there and we're getting a lot of traction.

For example, from the micro-finance organizations, the majority of micro-finance clients/ micro-credit clients are women in developing countries. These are women that are very independent. They're entrepreneurs. Micro-finance enables them to become the primary earner for their family and become something of a matriarch.

So what happens when this woman turns 70 and can't work?

JULIA TAYLOR KENNEDY: Now we get to the retirement piece, I see.

FELIPE BOTERO:
Do you think she wants to become dependent on someone else and become a drag on their ability to succeed? No way. That's the last thing they want to do.

They look at these products and say, "That's exactly what we need to be doing."

So I think we're on the right track.

JULIA TAYLOR KENNEDY: Great.

From what I've read about recent studies done of micro-credit, there are some issues that come with it. Sometimes it's used for subsistence. So it's hard to achieve the long-term goals that micro-credit is there to achieve. I've heard the idea that micro-insurance could help micro-credit succeed because it gives this sort of savings plan for people who aren't sure how to save.

Do you see it that way, or do you see it really as something more supplemental for emergencies and retirement?

FELIPE BOTERO:
There is a lot of synergy between micro-credit and micro-insurance. In fact, I call it the three-legged stool of micro-finance: credit, insurance, and savings. They all work together to support each other.

But there are differences, too. For example, micro-credit is really geared towards the micro-entrepreneur. And yes, it's used by others for personal consumption, emergency situations, and smoothing out income between harvests.

But insurance is for everybody. Insurance is based on the law of large numbers. We want everybody to have a policy because that way you diversify your risk and you get a better result in the end.

Anti-selection is one of the biggest issues in insurance. You don't want to just have people who are bad risks, because then that pool is not going to work, it's not sustainable.

Insurance takes it beyond where micro-credit can go, but then they support each other.

For example, one of the things that—and I was going to say poor people, but really all people have with long-term committed savings or contractual savings is that "life is what happens when you're busy making other plans".

But what happens is sometimes you need to have money. You're committed to saving for 20 years and you can't touch it. But guess what? "I need it. I've got to have it."

So what happens? The only option that insurance can offer is, "Here's your money, minus X because we have to protect the rest of the customer base and we have to cover overhead. So here's your money minus our expenses."

Or maybe we could do a loan. "So you have an emergency? Okay, you have an asset here that we could lend against." Maybe the micro-credit can now have a new role in partnership with the insurance and the long-term savings.

There is a lot of potential there for working together.

Just to touch on the point that you started out with, which is there has been a lot of criticism about micro-finance and micro-credit. There has been a lot of criticism about insurance as well. I think that is something that we always have to face and work against in partnership with our regulators and other insurance companies.

We have to be ethical, number one, and we have to have integrity and honesty of doing business. Otherwise what happens is we build an unsustainable business.

What we are here to do is to be around for another few hundred years. MetLife is a company that is 142 years old—and we're just a baby. We have to build sustainable businesses, number one. You can't do that unless you have fundamental ethical values.

JULIA TAYLOR KENNEDY: Which brings us back, of course, to what I was going to move to next, which is that a colleague told me that you have a background of military service and your son is serving now. How has that and other elements of your background informed the way you have approached your job at MetLife, seeking out these types of social elements to what insurance can do?

FELIPE BOTERO:
That's an interesting question. I don't think I've had that one before.

What immediately came to mind is the word "service." When you are a serviceman—and that's what our men and women in uniform are—they are serving their country and they're serving people. There is a service ethic that's in the military.

My father was in the military and I was in the military and my son is in the military, as you said. We do have a service ethic in our family, in our tradition, and we want to help others.

In some way by helping others we help ourselves. It's our purpose; it's what we were meant to do.

The military is special in our family. I think it also has a lot of other traditions of ethics that are very strong. This whole idea of honor, which you don't find in a lot of other places, is very strong in the military. It has all the right building blocks.

Having had that experience has really helped me to mold my thinking.

JULIA TAYLOR KENNEDY: How does that affect your approach in other aspects of your life: In building your career, in figuring out how to balance questions of how hard to push at MetLife, how hard to work versus home life, all these other decisions that crop up every day?

FELIPE BOTERO:
I get up at 4:30 in the morning every day.

JULIA TAYLOR KENNEDY: Do you really?

FELIPE BOTERO:
For reveille.

JULIA TAYLOR KENNEDY: Wow!

FELIPE BOTERO:
I do get up. I've done it all my life. So the Army helped me with that.

JULIA TAYLOR KENNEDY: I can imagine so. I could never do that.

FELIPE BOTERO:
There is a sense of you need to know when it's your turn to lead and when it's your turn to follow. You get that from the military.

Also the idea that you're not alone in making decisions. There are going to be moments when you have to make a decision on your own, but those are very rare, and most of the time it's important to understand what others are thinking, what others' opinions are, and really make well-formed decisions.

I hate to think that the military mind idea is there, but it really is in a lot of ways. And it's not the traditional way you would normally think of the military.

JULIA TAYLOR KENNEDY: Violence, violence, violence.

FELIPE BOTERO:
It's not that. I think there are some people that I'm sure approach it that way. But I think if you are really, truly a soldier, you are fighting for peace.

JULIA TAYLOR KENNEDY: So where do you see this going? You say you're working for micro-finance. Do you have other directions to go in terms of social enterprise and what to push in the future?

FELIPE BOTERO:
We have a long way to go. But this is a great moment for us, for me especially and for MetLife. MetLife announced recently that we're buying Alico, which is a part of AIG.

It's interesting, because AIG was the first insurance company that really got involved with micro-insurance in Uganda. They were very strong and showed the way. This is going back ten years, 15 years.

But now MetLife is buying Alico, which is a global insurance company. So we are going to have presence in over 70 countries. That is an exciting opportunity for MetLife to develop and grow our micro-insurance business.

We have 4 billion people on this planet, Julia, that do not have access to formal insurance products.

JULIA TAYLOR KENNEDY: Wow!

FELIPE BOTERO:
Four billion people. That's over 80 percent of the population. So we have a lot of work to do to establish that culture, to make these products available and to give people who are trying to make better lives for themselves the ability to do that.

The MetLife vision is to build financial freedom for everyone. It's on our website.

I always ask people, "Do you really mean everyone?"

JULIA TAYLOR KENNEDY: Right.


FELIPE BOTERO: "It's everyone. It's everyone." So that's our challenge.

JULIA TAYLOR KENNEDY: Great.

Felipe Botero, thank you so much for sitting down with me for Global Ethics Forum. This is fascinating.


FELIPE BOTERO: It's great, Julia. Thank you so much.

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