The UN urged government and financial organisations to stimulate Cambodia’s flailing micro-insurance industry yesterday, after a study found the country’s poor are vulnerable to indebtedness during a crisis.

The United Nations Development Business (UNDB) hosted a working group yesterday at Phnom Penh’s Sunway Hotel launching the study, which highlighted Cambodia’s need for a more comprehensive micro-insurance industry.

Of the 302 responses from people in Kandal, Kampong Cham and Kampong Thom provinces considered in the study, 97 per cent said they often faced risks including illness, drought, flood, death of a household member and crop damage.

Nearly 90 per cent reported illness as the most common risk they face, while 49 per cent named crop failure resulting from drought or flood as the most common.

Just 17 per cent were current micro-insurance clients while 70 per cent said they were former micro-insurance customers but discontinued their policy due to inflexible payment options and complicated policy documents.

According to the findings, 78 per cent of the respondents said they were willing to pay premiums “to a third party” of up to $15 per year in order to curb the financial risks they face on a daily basis.

The responses triggered a UNDB call to the Cambodian government and finance organisations to “think outside the box” when designing a micro-insurance strategy amid criticisms the current products available were not suited to the Cambodian people.

UNDB social protection economist Marisa Foraci said trust was a major factor for rural communities and expressed fears that the lack of carefully thought out products could force Cambodia’s nine million low-income citizens to take on more debt through micro-finance company loans.

Cambodians owed almost $1.2 billion to the country’s 35 microfinance institutions at the end of September, according the Cambodia Microfinance Association, with about 30 per cent for agricultural production.

“[Cambodia’s] low-income communities have become dependent on microfinance loans in times of crisis. This will undoubtedly result in over-indebtment and may lead to intergenerational poverty transmission,” Foraci told the working group.

“It is clear people are aware of the benefits of the micro-insurance, but they would like the government to be involved to guarantee that no one is going to leave with their hard earned money. Local authorities must also be involved in any micro-insurance strategy the government decides on.”

Foraci said it is impossible to estimate how long it would be before Cambodia has an effective micro-insurance strategy and market of products.

“I think – hope – the government is considering a micro-insurance strategy. They wanted to see if there was truly a demand first.”

Mey Vann, director of the Department of Industry and Finance at the Ministry of Economy and Finance commended the UNDB study.

“We can see the demand for micro-insurance in Cambodia . . . [But] we need to consider both sides of the coin, to balance the profits of the operators, the benefits of the clients and the responsibility of the government,” he said.

There are doubts however, from within the industryPresident of the Cambodia Microfinance Association Bun Mony, said despite the UNDP’s findings, Cambodia’s low income families would not afford “such a luxury”.

“It will not work. It has been tried for the past three or four years with no growth in the sector,” he said.

Mony said $15 a year was a lot for a low-income family who were better served investing in their business.

“To date I have not seen a proper or effective micro-insurance policy that meets low income families’ needs.”