Potential in the Microinsurance Market
By Thomas | Published December 17, 2010
The global microinsurance market is estimated to be worth US$40 billion to the insurance industry according to a report by Zurich based Swiss Reinsurance.
Swiss Re has highlighted the huge potential in supplying the massive populations in countries in the emerging markets of Asia, Latin America and Africa, with low cost insurance products. The report identifies the scope to expand the range of products, which could be made available to low-income groups in these continents.
The historic reason for the under-development of insurance products to low income segments in emerging market economies has been the inability to find commercial solutions to the supply of products for this market. However, the Swiss Re report estimates that there are approximately 2.6 billion people worldwide – living on US$1.25 to US$4 a day – requiring low cost insurance protection, which could be made available on a commercial basis; the potential earnings from this market is estimated to be US$33 billion.
Additionally, it is estimated that a market – totalling 1.4 billion people and US$7 billion in premium value – exists to supply insurance to individuals living on less than US$1.25 per day, with help from government support / international aid.
The author of the new sigma study, Amit Kalra, said: “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.”
The largely untapped microinsuance market provides global insurers with new opportunities to grow, and create a new source of premium income driven by the volume of sales involved. With the global economic conditions remaining challenging for multinational insurers – partly stemming from the demands in the mature insurance markets in Europe and Northern America being static – insurers recognize the opportunities presented with access to under-developed insurance markets.
The economies in Asian countries such as China, India and Indonesia have been able to buck the global trend of low growth by strengthening economic activity, and represent the optimum potential for microinsurance; the populations in China and India top 2.6 billion people.
In addition to the immediate commercial benefits mircoinsurance provides for insurers, there would potentially be longer term scope for business growth as new customers become accustomed to the benefits of insurance protection and saving schemes and expand the purchase of new products.
Amit Kalra said: ”The Asia-Pacific region is the fastest growing and the largest microinsurance market. Microinsurance has also grown considerably in African and Latin American countries despite these being relatively smaller microinsurance markets at present.”
The largest selling segment in the micronisurance market currently is credit life – a mortality cover coupled with a mircrocredit element. However, the need for better quality and a broader choice of insurance protection – to meet demand in the agricultural, saving, life and health microinsurance market – is recognized.
There are challenges in the microinsurance market needing to be overcome before the sector can fully develop, with clearer regulatory standards and improved infrastructure to be installed. There is also inadequate historical information surrounding risks and claims insurers may face in these new markets.
Multinational insurers embarking on the provision of microinsurance are faced with the challenge of establishing strong local partnership to distribute micro products and suitable channels for policyholders to make claims. Insurers also need to take into account the cultural element of local communities to ensure services and products meet the specific requirements of potential policyholders.
In July this year, the China Insurance Regulatory Commission (CIRC) reported that the world’s largest insurer by market value – China Life Insurance – had written nearly 4 million microinsurance policies, generating US$20.2 billion. China Life recently received regulatory approval by the CIRC to expand its microinsurance business in rural regions of China, which include Jiangsu, Hunan, Tibet, Zhejiang and Xinjiang – helping the insurer towards its goal of generating US$38 million in microinsurance premium income in 2010.
Allianz, one the world’s largest insurers, has been active in the microinsurance market for years and operates in countries such as India, Indonesia, Colombia, Egypt, Senegal and Cameroon. Allianz Indonesia has set a target this year to achieve 1 million policyholders by 2012. In India – Allianz’s largest microinsurance market – the insurer offers savings, property, life and health micro products and expects the market to continue to grow.
Non Government Organizations (NGOs), governments and local communities have been working on programmes across regions of the world where vulnerable communities and individuals require protection for their livelihood and well-being. Organizations such as the International Finance Corporation (IFC) recently committed US$4.1 million in grants for mircoinsurance in Eastern Africa. With the Swiss Re report highlighting the potential benefits of mircoinsurance on a commercial basis, insurers have the opportunity to develop policies to meet the protection needs of the more venerable element of the world’s population.
The fundamental basis for microinsurance to work for the insurer is a high volume of policyholders, coupled with low cost margins. Also, insurers will benefit from working with local partners with close ties to local institutions and communities to help mircoinsurance providers to establish a market presence.
Insurance Companies Mentioned:
Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.
Allianz Group is one of the leading global services providers in insurance and asset management. With approximately 153,000 employees worldwide, the Allianz Group serves approximately 75 million customers in about 70 countries. On the insurance side, Allianz is the market leader in the German market and has a strong international presence.
China Life Insurance
China Life Insurance Company Limited (China Life) is a People’s Republic of China-based life insurance company. The products and services include individual life insurance, group life insurance, accident and health insurance. The Company operates in four business segments: individual life insurance business, group life insurance business, short-term insurance business, and corporate and other business.