Microinsurance presents chances as well as challenges, to international insurers
20 November 2009
Huge opportunities exist for insurers in providing protection for those around the world on the lowest incomes, but they must have patience and tailor their approach to the specific needs of these people, senior insurance executives who attended a Lloyd’s 360 Risk Insight seminar on microinsurance were told.
The potential size of the market is immense. “Up to 3 billion people could benefit from microinsurance, but only a fraction of that number have cover at the moment,” Luke Savage, Lloyd’s Director of Finance, Risk Management and Operations told the audience in Lloyd’s Old Library on Thursday 19 November.
Sudden illness, death or the loss of their property could spell a devastating slide into penury for many people around the world on low incomes. Insurance is ideally suited as a method for these people to hedge their risks and help them out of poverty, said Paul Jardine, Group Chief Operating Officer at Catlin. “Insurance is what enables the modern world to get on with life,” he said.
Although great strides have been made in recent years in alleviating global poverty, climate change threatens to reverse the progress that’s been made, said Matthew Wyatt, Head of the Climate and Environment Group at the UK’s Department for International Development (DFID).
Oxfam estimates that by 2015 375 million people will be affected by climate change- felt by those in the developing world who were the least responsible for creating it but are most vulnerable to its effects.”
Insurance has an important role to play in helping people adapt to the impacts of climate change, said Wyatt. The UK government is pushing for insurance to be recognised as part of the solution to tackle global warming at the Copenhagen Climate summit next month.
The UK’s view is that microinsurance isn’t about corporate social responsibility, said Wyatt. “It’s about catalysing financially and commercially viable products that can be developed at scale and can generate a commercial return.”
Significant Benefits
There are significant benefits to commercial insurers offering microinsurance, said Jim Roth, Principal of Leapfrog Investments, the world’s first microinsurance private equity fund. It gives them access to a large and more diversified pool of risk and allows them to get a foot in the door of developing markets. “They have a sense that today’s low income client will be tomorrow’s middle income client.”
Microinsurance is already emerging out of the shadow of microfinance, said Craig Churchill, Senior Technical Specialist at the Social Finance Programme at the International Labour Organization.
But despite the benefits of providing insurance to low income people around the world, there are still substantial challenges to be overcome. In its 360 Risk Insight report, “Insurance in Developing Countries: Exploring Opportunities in Microinsurance”, published in association with the Microinsurance Centre, Lloyd’s emphasized that microinsurance requires a lot of hard work and commitment.
Profits from it are only modest at the moment, there is little understanding of the concept or benefit of insurance among the vast majority of people who form the market, distributing products cost effectively is a huge challenge, while governments and supervisors have been sceptical, the report said.
Microinsurers are rising to these challenges, however, said Churchill. Many more distribution channels have been developed to sell products to low-income people, ranging from churches to family-run stores to mobile phone operators. Insurers have launched educational drives to persuade low-income people of the benefits of insurance and he said the International Association of Insurance Supervisors (IAIS) is taking a lead in promoting the use of microinsurance.
At its annual meeting held in Rio de Janeiro in October, the IAIS unveiled its “Access to Insurance Initiative” in which international development agencies and insurance regulators will work together to strengthen the role and expertise of industry supervisors to help promote expanding access to insurance among the world’s poor.
But microinsurance should not be seen by companies as providing cut-down versions of what they offer clients in their existing markets. “The products that insurers have sitting on their shelves aren’t really appropriate for this market. We need to start from the bottom up and really understand clients’ needs,” said Churchill.
Ultimately, companies will have to take a long term view towards microinsurance, said Jardine. “We are investing for the future and returns may not emerge in the short term. It’s no different from investing in an international network of offices. You invest, you have patience, you start small and grow and then five years on the positive results accrue.”
Last updated on 18 Dec 2009
