MILK Brief #27: Doing the Math - Funeral Insurance and Speedy Claims in the Philippines

The MILK team partnered with the Center for Agriculture and Rural Development Mutual Benefit Association, Inc. (CARD MBA), to study the client value of its life microinsurance using the Client Math methodology. We segmented the usual Client Math analyses of costs and financing mechanisms by different claim wait times to understand how claim speed affects client value.

We propose that ultrafast claims payments offer less financial value than they do expected value as they create peace of mind and trust in the insurer. In addition to assessing CARD’s product on its own, we look across the responses of beneficiaries from CARD and MicroEnsure and find that the speed of claims does influence the nature of client value received. The timing of the payout can be associated with small upgrades for ceremonies (the “bigger box” effect). For example, expenses for the wake increase when payouts are ultrafast (within a week of death) while they increase for funerals when payouts are fast (within two weeks).

The results also suggest that when the deceased is a primary breadwinner, delayed payment of life benefits may actually safeguard the bereaved family’s livelihood and help beneficiaries avoid the temptation of a “bigger box,” especially in rural communities where family and community still play a large role in funeral financing. In this case, further delayed cash payouts might offer financial value through the goal of boosting productive capacity after losing a breadwinner rather than simply covering funeral costs. One must bear in mind, however, the importance of certainty and its effect on expected value; usefully delayed payments should be intentional, and not the result of inefficient or irregular claims processing.  Also, while waiting to access part or all of an insurance benefit right away may be beneficial, waiting too long can be detrimental as it erodes the benefits of insurance: those respondents who received funeral benefits within two weeks were able to cover or pay down all of their loan financing, and avoid accumulating interest on loans, whereas those whose payout was seriously delayed were not able to do so.