Posted on Oct 28, 2010 by Sergio Ulloa
The purpose of microinsurance is to provide basic, low cost insurance cover to individuals on low incomes requiring protection for typical risks including the affects of serious weather conditions, healthcare, life and non-life products. Microinsurance offers security for individuals who need insurance protection but until now have been unable to afford the relatively high cost of cover.
Insurers are seizing the opportunity to cooperate with international agencies in providing microinsurance to populations in less developed countries, with further scope for providing insurance cover to the less affluent citizens in the more wealthy trading nations. The potential for provision of this type of insurance - by exploiting the scope for attracting high numbers of contributors making regular payments into a fund - is considered to be vast.
It is estimated that there are three billion low income individuals globally who would reap benefits and comfort from low cost insurance. The scale of the market clearly represents a tremendous commercial opportunity for local and multi-national insurers, and, at the same time, it will enable the companies to make a significant ethical contribution to social needs.
Global poverty and the recession will be the key drivers in the growth of the microinsurance business, which is already estimated to be used by 135 million people worldwide. The demand for affordable indemnities is on the rise with insurers in regions such as Africa and South East Asia taking steps to initiate microinsurance programmes.
The challenge insurers, aid agencies and governments face are promoting the concept of insurance to communities which have no or little previous knowledge of commercial and personal protection. Insurers also need to consider the commercial aspects of providing insurance for low level premiums and the trade-off on the volume of potential customers taking out indemnities.
In addition to the sale of microinsurance to new markets, the impact of the 2007/8 financial collapse, the global recession and the imposition of austerity measures in major western hemisphere countries is expected to open up additional opportunities for the sale of microinsurance; a notional estimate portrays the prospect of 50-90 million low income people being plunged into poverty in developing countries. The question then posed is whether more micro policy providers will be needed.
Recessionary pressures and economic factors will undoubtedly influence the size of the microinsurance market, but a number of other variables will contribute to this including climate change and its impact on flooding and droughts.
The provision of international microinsurance is already taking shape. In Indonesia, Allianz has secured 230,000 new customers with microinsurance policies where premiums range from IDR 10,000 (US$1.23) to IDR 100,000 (US$11.2); in a country, with a population of 240 million people, the potential for an increase in business is tremendous and Allianz Indonesia intends to expand its sales force to 50,000 agents by 2015 in order to capitalise on this opportunity. These efforts are supported by the Indonesian government.
It is estimated that the micro insurance market in Africa could be worth US$25 billion driven by a potential customer base of 700 million people. Figures indicate that around 147 million African lives are currently covered by microinsurance polices, which generates approximately US$ 257 million in premiums for insurers. Countries such as Kenya has seen a small take-up of microinsurance, but it was reported by the Association of Kenya Insurers (AKI) that there is still scope for significant improvement - but it is predicted that it may take up to three years for the insurers to develop products to meet the needs of the low-earning population. Unlike emerging and developing Asian nations, countries in Africa generally show little sign of underlying prosperity and the insurers have been slow in seeking market penetration.
Microinsurance is already popular in the Philippines where there is significant exposure to natural disasters - Munich Reinsurance has been particularly active in providing indemnities for this category of risk in this nation. Also, the healthcare system in the Philippines is currently in the early stages of planning the reform of the public healthcare service, where out-of-pocket payments are currently a main contributor to overall funding. This causes a problem for many of the local inhabitants and the government is in the process of establishing the Philippine Health Insurance Corporation (PHIC) to give poorer Filipinos access to better quality healthcare. This is being run alongside the National Strategy and Regulatory Framework for Microinsurance, which is promoting growth of the insurance sector by providing scope for equal and fair access to affordable Philippine mircoinsurance products, thereby raise the general standard of health of the population this country.
Asian countries are keen to take advantage of the microinsurance sector and the issue was raised specially at the East Asian Insurance Congress held in Bali in October 2010; governments and insurers were in unison in recognising the benefits for residents with low levels of earnings requiring the complete range of insurance cover which could be made available.
The BRIC countries - Brazil, Russia, India and China - are recognised as economic powerhouses; however, there are sizeable elements of the very large populations not reaping the benefits of national prosperity. With a wide range of insurers present in these countries, it should be possible to develop insurance products to satisfy emerging demand. India has been at the forefront of developing the microinsurance sector, with large pockets of low income people spread across the country - about 70 percent of India's 1.2 billion population live in rural areas - and companies such as Bajaj Allianz and Aviva are able to offer life protection policies starting at as little as US$0.50 per week.
Zurich Insurance has increased its focus on providing microinsurance products in Asia, Africa and Latin America and has established good relations with international aid organizations to ensure appropriate products are designed to cater for the needs of the disadvantaged populations in the regions. Latin America has a population of approximately 569 million people, with around a quarter of those people being on low incomes; it is therefore vitally important for all parties involved with the provision of microinsurance do so to meet the needs of this element of society.
Insurers and governments will play pivotal roles in the further development of the microinsurance sector on a worldwide basis. This will fulfill many benefits, firstly, by providing the less advantaged populations in many countries with valuable insurance cover and thus providing invaluable peace of mind to this element of society and, secondly, by providing a mechanism for expanding and improving the robustness of the insurance industry. Microinsurance is not about corporate benefits, it is a means of achieving social equality particularly in the healthcare sector where many countries are looking to reform the structure of health service provision and micro insurance will be an important step in enabling this to happen.
Insurance Companies Mentioned:
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.
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world's largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
Europe's fourth largest insurance company, with more than 300 years of experience in the global insurance industry, Aviva is committed to the safety and satisfaction of its customers. They sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance and pensions.
Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.