IFC Invests in Emerging Market Insurance Development

Posted on Jun 23, 2011 by Sergio Ulloa (G+)

Earlier this month, The International Finance Corporation (IFC), an integral member of the World Bank Group, announced a partnership with Archimedes Global to invest US$3 million in equity in health insurance ventures in Georgia and Kazakhstan, aiming to eventually increase access to sufficient healthcare services throughout other emerging markets in Eastern Europe and Central Asia. Georgia inherited from the Soviet Union an obtuse, highly centralized, state healthcare system, which the government has since struggled to afford and maintain since its independence in 1991. Subsequent market-driven reforms have led to some improvements in care but, due to very limited national resources, the utilization rate of healthcare services has dropped and the vast majority of expenditures are financed through out-of-pocket payments at the point of service without insurance. The Georgian healthcare system has thus faced several obstacles: quality of health services has stagnated, the standard on medical facilities and equipment is poor, and access to any healthcare services is an issue in rural areas, with availability and affordability of even basic medicines remaining a significant problem. For visitors and expatriates in Georgia, it is recommended that international health insurance be taken out prior to your visit. The IFC's six figure direct investment makes the organization a minority shareholder in Archimedes Health Developments, a newly formed company founded by multinational investor group Archimedes Global Ltd (AGL). The IFC's outlay will be combined with US$2 million in additional financing from AGL. This injection of fresh capital will enable the new joint venture company to construct vital medical clinics throughout Georgia and to incorporate both firms' expertise in developing viable healthcare services and health insurance businesses. Speaking at the signing ceremony the Chairman of Archimedes, Doron Inbar, explained that the IFC's contribution would also pertain to AGL's health insurance and healthcare services in nearby Kazakhstan, and other new markets in Eastern Europe and Central Asia that the company may enter later. "This investment marks an important step in our expansion in Georgia and within Eastern Europe and Central Asia, especially in countries that have the greatest potential for high-quality health insurance," Mr. Inbar said, adding: "The validation of our business model by the leading international finance institution focused on private sector development will be instrumental to our efforts to expand our activities in larger markets and raise additional funding." The Archimedes staff in Georgia has substantial operational experience in the local healthcare sector, together with the institution's sound technical skills related to insurance and health services. The IFC's involvement will help mitigate financial risk against people seeking treatment and will also promote transparency and better business practices in the local health sector. Ed Strawderman, IFC's Senior Manager of Financial Markets for Europe and Central Asia, told reporters that this deal was an important venture for the organization and could be of great benefit to the people of Georgia. "Private health insurance is one of the integral elements of a mature insurance market. It leads to better quality, transparent, and efficient healthcare. This will be IFC's first investment in health insurance and we believe it will help to further promote top international standards and attract other investors to the insurance market," Mr. Strawderman said. IFC is the largest global development institution focused on the private sector in developing countries. Georgia has been a member of IFC since 1995, joining in the aftermath of an economic collapse and mounting civil unrest following independence. To date, The IFC has approved nearly US$500 million worth of investments in Georgia, funding 36 projects across a wide variety of enterprise sectors. IFC is currently working through its advisory services to reform Georgia's tax system to better benefit small businesses, and is also helping improve food safety standards among Georgian companies, at the same time increasing their international competitiveness. The IFC has also been active in Brazil this month, signing an agreement with Brazilian insurer American Life to develop life insurance products targeting low-income families in the large South American country. IFC will use its consultancy services to help American Life on planning the business, followed by a pilot and testing phase and further refining the product. The finalized insurance scheme is scheduled to be ready for 2012. The targeted microinsurance market in Brazil represents some 128 million people whose families cumulatively earn less than US$800 a month. Despite the tremendous size of this market, development of appropriate coverage schemes have thus far has been limited and general awareness of insurance products has not penetrated low-income Brazilian populations. Loy Pires, IFC's Brazil Country Manager, said the project met the IFC's mission statement on promoting access to finance for low-income segments of society. "We acknowledge the importance of insurance products for low-income families in managing risks, and through the partnership with American Life, we expect to provide relevant contribution to the Brazilian microinsurance space and to develop innovative ways to reach the base of the pyramid," Pires stated. IFC also has plans to increase private sector participation in Brazil to strengthen infrastructure and public services, particularly in health and education. Other priorities include improving the investment climate in Brazil, helping small business enter the formal economy and strengthening their private sector competitiveness, and promoting socially and environmentally sustainable business practices. Pedro de Freitas, Head of American Life concluded that the challenges present in the Brazilian microsurance market would prove a daunting enough task, "American Life is a Brazilian insurance company that offers life insurance to niche segments not covered by most large insurance companies. Building a strong presence in the microinsurance space is now among our high priorities." The Brazilian insurance market is the largest in South America, and offers the potential to become a more prominent international insurance market across all disciplines. Recent economic stability, positive credit trends, and regulatory reforms that have stabilized the currency and promoted domestic savings, have all contributed to growth across the insurance industry in Brazil. In spite of continued regulatory obstacles, large multinational insurers cannot ignore the market's size and growth potential and will be looking to invest themselves further in Brazil, and other emerging economies, to offset the continued static performance of the established North American and Western European markets. Companies Mentioned IFC The International Finance Corporation (IFC) is a member of the World Bank Group and is headquartered in Washington, DC. The IFC is the largest global development institution focused on promoting private sector investment in developing countries. Established in 1956, The IFC now has 182 member countries which collectively determine the organization's policies and approve investments. Archimedes Global Ltd Archimedes Global was founded in 2007 as an investment vehicle targeting health insurance developments in emerging economies. Today Archimedes owns three separate insurance companies in Kazakhstan, Greece and Georgia with plans to expand further into Eastern Europe and South Asia. In addition, the company provides health services that complement insurance companies' services. American Life American Life Companhia de Seguros is a life insurance company focused on offering niche insurance products to undeserved consumers in the Brazilian insurance market.