Microinsurance and Emerging Markets
A growing number of insurers are tapping into markets in developing countries through microinsurance projects, which provide low-cost insurance to individuals generally not covered by traditional insurance or government programs. Microinsurance products tend to be much less costly than traditional products and thus extend protection to a much wider market. The approach is an outgrowth of the microfinancing projects developed by Bangladeshi Nobel Prize-winning banker and economist Muhammad Yunus, which helped millions of low-income individuals in Asia and Africa to set up businesses and buy houses. Microinsurance products vary in type and structure but are generally distinguished by high volumes, low cost and efficient administration. Microinsurance policies may be offered along with a small loan, with premiums a small percentage of the loan amount.
Microinsurance is characterized by high-volume, low-cost and ease of administration. There are various types of microinsurance programs. One option relies on parametric triggers, which enable rapid payouts based on measurable factors, or parameters. Parametric policies take into account known and observable characteristics. For example, a policy for farmers might be based on the amount of damage a certain kind of crop would be likely to sustain in a given area in specific conditions. When conditions reach the trigger point, for example, 100-mile winds in a specific location or a defined amount of rainfall, policyholders in the designated area automatically receive compensation. By not having to rely on individual claims adjusters to inspect damages and decide the amount of losses claims can be settled quickly, thus allowing claimants fast access to funds that they might need to keep their business going. A 2010 study by Swiss Re found that credit life, which pays off the outstanding principal and interest of a loan if a borrower dies, was the most dominant microinsurance product, but that insurers were increasingly designing products that provide more comprehensive life and property protection to low income people.
Microinsurance is often distributed in cooperation with microfinance organizations, rural banks, savings and credit cooperatives, and humanitarian organizations providing nonfinancial services. Insured crops and livestock can be used as collateral for loans to buy better equipment or otherwise improve the farmer’s yields, ultimately raising the standard of living.
A 2012 A.M. Best report states that while there is no set definition of microinsurance, it can be generally characterized as insurance that is accessed by the lower economic population groups and serves to improve basic human needs. The report identifies four typical characteristics of microinsurance: low-cost transactions; simple risk coverage; low net-worth clients; and community involvement. It cites a 2010 survey by the Microinsurance Network that found that the main microinsurance products are those that insure against death and accidents, with life insurance accounting for 29 percent of policies and accident and disability accounting for 23 percent.
American International Group Inc. (AIG) was one of the first companies to offer microinsurance and began selling policies in Uganda in 1997. It was soon joined by other large insurers including Swiss Re, Munich Re, Allianz and Zurich Financial Services. Today some 60 insurers have microinsurance projects in place. Recent developments include:
- Microinsurance providers are played an important role in covering losses from Typhoon Haiyan, which devastated the Philippines in November 2013. By the end of the December 2013, microinsurance providers had paid claims to fishermen, farmers, vendors and others totaling $1.9 million, according to A.M. Best.
- In June 2013 the Microinsurance Facility of the International Labor Organization held a forum in New York to discuss the potential for microinsurance to protect the poor in such diverse countries as Peru, Kenya, South Africa, and India, while providing opportunities for insurers.
- In July 2012 the Chinese government launched a national microinsurance program, based on the success of a four year trial program in rural areas.
Size and Location of the Microinsurance Market
Protecting the Poor, an April 2012 report by the Microinsurance Facility of the International Labor Organization and the Munich Re Foundation, found that the number of people covered by microinsurance rose from 78 million in 2007 to 135 million in 2009 to nearly 500 million today. The report shows that 80 percent of people covered by microinsurance live in Asia, with China and India presenting the largest markets in that region. Large and dense populations, interest from public and private insurers, appropriate distribution channels and active government support, are some of the reasons why Asia is ahead of the game, the report says. It is estimated that India accounts for 60 percent of the global microinsurance market, Latin America accounts for 15 percent and Africa accounts for 5 percent. The report estimates that at least 33 of the 50 largest commercial insurance companies in the world now offer microinsurance, up from seven in 2005,
International Microinsurance Conference
The 9th International Microinsurance Conference, held in November 2013 in Indonesia, brought together some 400 participants from nearly 60 countries to discuss the challenges and opportunities in microinsurance. “The Landscape of Microinsurance in Asia and Oceania,” a new study released at the conference by Munich Re Foundation and Deutsche Gesellschaft für International Zusammenarbeit (GIZ), revealed that the number of insured low-income people in the region has increased by over 30 percent from 2010 to 2012. The study estimates that more than 170 million people now benefit from microinsurance.
The conference was hosted by the Munich Re Foundation and the Microinsurance Network, with the support of the Indonesian Financial Services Authority; the Indonesian Insurance Council; Deutsche Gesellschaft für International Zusammenarbeit, on behalf of the German Federal Ministry for Economic Development and Cooperation; the Georgia State University’s Center for the Economic Analysis of Risk; the World Bank/IFC; and the PharmAccess Foundation.
Insurance in Emerging Markets
China is the largest emerging market country, based on insurance premiums written (including life and nonlife business), with $278 billion in premiums written in 2013, followed by Brazil, with $89 billion, and India, with $66 billion, according to Swiss Re. When measured by insurance density, however, the Bahamas ranked first, with $1,839 in premiums per capita (including life and nonlife premiums).
The rise of microinsurance reflects global insurers' increasing interest in emerging markets. With limited growth prospects in the insurance markets of developed countries, which are largely saturated, insurers see emerging economies as presenting significant potential for growth and profitability. Premium growth in developing countries has been outpacing growth in industrialized countries.
Swiss Re’s 2014 sigma report on world insurance markets found that premiums in emerging countries rose 7.4 percent in 2013, after adjusting for inflation, following a 7.1 percent rise in 2012. Growth in developing markets outpaced growth in advanced markets, which increased by 0.3 percent in 2013 and 1.7 percent in 2012. Emerging markets accounted for 17 percent of total global premium volume in 2013, up from 16 percent in 2012.
Swiss Re identifies emerging markets as countries in South and East Asia, Latin America and the Caribbean, Central and Eastern Europe, Africa, the Middle East (excluding Israel), Central Asia and Turkey. Emerging market premiums rose from $728 billion in 2012 to $788 billion in 2013, driven by strong growth in the nonlife sector. Nonlife premiums have been rising by more than the annual average emerging market economic growth rate since 2006. Life sector premiums had 6.4 percent growth in 2013 compared with 5.2 percent in 2012, when growth in the sector was constrained by declines in the two key markets, China and India.
INSURANCE IN EMERGING MARKETS, 2013
TOP TEN EMERGING MARKETS BY INSURANCE DENSITY, 2013 (1)
Allianz. Microinsurance at Allianz Group, Quarterly Update, April, 2012.
A.M. Best. The Potential of Microinsurance, March, 2012
Lloyd’s of London, 2011, Microinsurance, Spreading the Word. 2011
Munich Re, 9th Annual Microinsurance Conference, 2013
Munich Re Foundation, Protecting the Poor: A Microinsurance Compendium. Volume II, 2012
Swiss Re. sigma, No. 6, 2010. Microinsurance: Risk Protection for 4 Billion People
Swiss Re. sigma, No. 5, 2011. Insurance in Emerging Markets: Growth Drivers and Profitability.
Zurich, Microinsurance Resources
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