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A small price to pay for security

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KAI RYSSDAL: Mexican insurance companies are getting into the micro-finance market. There can be big money in those small loans. Even thought the amounts are low, if you do enough deals the profits can really add up. And Jordana Gustafson reports from Puebla, Mexico micro-insurance could be coming soon to a location near you.


JORDANA GUSTAFSON: Alfredo Honsberg is just not interested in the health of his estimated 6 million customers.
ALFREDO HONSBERG: If they drink or don't, if they have diabetes or no, if they are old or young, it's no matter to us.

It's not that he doesn't care if they're sick . . .

HONSBERG: This is not the type of product that requires that type of underwriting.

Honsberg is CEO of Seguros Azteca, one of a handful of new micro-life-insurance companies that caters to Mexico's working poor. Policies cost as little as 50 cents a week for a death benefit of $1.

To get a policy, there's no medical evaluation and no extensive credit check. You just have to be between the ages of 18 and 65 and be able to prove that you have some income.

Honsberg says life insurance for the poor is a product much needed by a vulnerable population.

HONSBERG: The financial impact of a death in this population is much worse than in middle or higher-income people.

The tiny life insurance policy proved a godsend for 40-year-old housewife Augustina Reyes-Cantu. She received $9,000 when her husband, a bricklayer, died falling from a roof a year ago.

AUGUSTINA REYES-CANTU (voice of translator): The truth is, it helped me significantly. As I didn't have any other resources, when I found out about this, it helped me a lot.

The money has enabled Reyes-Cantu to keep the house she rents, and it's paid the fees to keep her two youngest children — both teenagers — in school.

Micro-policies for the poor are not new, but usually they're attached to micro-loans. If the policy-holder dies, the money goes directly to the bank to pay off the loan.

The challenge to selling stand-alone policies is reaching the poor. Seguros Azteca has solved this problem. They've put branches in a chain of popular home-furnishings stores.

HONSBERG: The insurance market in Mexico doesn't have the best reputation, and our clients believe in us.

Seguros Azteca signs on an estimated 50,000 new policy holders a week.

Etti Baranoff isn't completely comfortable with this model for micro-insurancea€¦ETTI BARANOFF: In reality, the poor they are so unsophisticated. Baranoff is professor of insurance at Virginia Commonwealth University. She worries the poor could be taken advantage of.

BARANOFF: They don't know anything about insurance. They don't know anything about risk sharing, underwriting standards.

Whenever you pool together a large group of people — like all those between the ages of 18 and 65'— insurance rates are going to be much higher than they need to be, she says.

Fifty cents a week might sound like a good deal, but if you're a healthy 30 year old, you could pay that amount for decades. If you're older and have the policy for just a few years before you die, the payout's the same.

Still Baranoff agrees that some insurance is better than none.

BARANOFF: The good thing is that suddenly they are getting some kind of coverage in order to be able to develop. But when it comes to the rates, it's really questionable.

Along with Mexico, Seguros Azteca is gaining ground in other countries like El Salvador and Argentina and soon — if all goes as planned — the United States. Honsberg hopes to offer micro-life insurance policies to migrant workers.There's one potential competitor Seguros Azteca may have to face down soon, though: Wal-Mart expects to be operating bank branches in Mexico by the second half of this year. But is Honsberg concerned?

HONSBERG: We welcome competition. But it will be tough — for them.

In Puebla, Mexico, I'm Jordana Gustafson for Marketplace.

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