NU Online News Service, Dec. 17, 12:00 p.m. EST
Insurers have a potentially vast new marketplace for innovative insurance solutions for the poor that can reach up to four billion people with potential premium of up to $40 billion, according to a report from Swiss Re.
In its latest sigma report, "Microinsurance-risk protection for 4 billion people," the 36-page study points out that based on World Bank statistics, around four billion people are living on $4 per day, and that includes 2.6 billion people living at under $2 per day.
"This vast section of the population is usually underserved and has very limited access to the basic necessities of life," the report said.
Microinsurance can offer "a viable alternative for low-income households to manage their risks." At the same time, the report notes, this segment of the world's population is viewed as "a vast untapped growth segment for the insurance sector."
Amit Kalra, author of the report, said in a statement: "For insurers, microinsurance creates an opportunity to tap into new markets and build a strong brand value that can be used for selling conventional insurance products in the future. It is a win-win situation: insurers help those who urgently need access to insurance. This in turn supports the long-term economic goals of insurers."
Microfinance, primarily microcredit, is the key driver for growth in the microinsurance field.
The report notes that credit life is the dominant microinsurance product today in an effort to bundle life protection with microcredit. However, this provides "limited protection to low-income families." Those involved in these programs, which include insurers, non-government organizations (NGO), mutuals and community organizations, are designing more products to address life and property protection and help individuals create savings accounts. The report notes that health and microinsurance are "highly pertinent" to the low-income population.
The programs are also "more complex in terms of their design, pricing and administration, underscoring the need for innovation to improve the viability of these programs.
The report notes that the Asia-Pacific region is the largest microinsurance market. It is also home to 70 percent of the world's low-income population. Programs have grown rapidly in India and Bangladesh, and new initiatives are being launched in China and the Philippines. Africa is a largely untapped market "with tremendous growth potential."
There has been strong growth in Latin America, primarily Brazil, Mexico, Peru and Columbia. However, growth has been slow in Central and Eastern Europe, the report notes.
The challenges facing growth of these products include:
o Insufficient infrastructure, including partners for distribution and claims management.
o The absence of regulatory provisions for these programs.
o The lack of exposure and risk data.
o Adaptation of products to cultural background from the perspective of the microinsurance buyer.
"Policymakers can deploy multiple approaches to develop the sector, including adopting specific microinsurance regulations, providing financial support and sponsoring insurance schemes targeted to the extremely poor population," Mr. Kalra said.
For the poorest, the report notes that government and public-private partnerships can work to channel subsidies to help fully fund or subsidizes premiums.
"NGOs, international developmental organizations and donors have played an instrumental role in aiding the development of the microinsurance sector," noted Mr. Kalra. "The contribution of social-minded entrepreneurs in the field of microfinance and microinsurance has also been influential in encouraging private players to participate in the socially driven businesses and thereby create new market opportunities for the bottom of the pyramid population."
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