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Swiss Re Steps Up Microinsurance Initiatives in Developing Countries

Posted on Oct 27, 2011 by Sergio Ulloa ()

Global reinsurer Swiss Re have added to their impressive international microinsurance platform this month with the announcement of a new three-year partnership with USAID to provide customizable, market-based insurance products for vulnerable communities throughout the Americas, Africa and Asia. Microinsurance refers to insurance products designed to provide basic, inexpensive cover for low-income individuals and families who require protection for typical risks including the affects of severe weather conditions, healthcare, crop, life and non-life products. Microinsurance offers vital security options for populations that need insurance protection but until now have been unable, or even aware of, the ability to afford the relatively high cost of coverage. The premiums and coverage are kept at a low level in order to make the products affordable and attractive to these first time policyholders. For the insurers meanwhile, microinsurance presents a key commercial opportunity due to the high volume of available policyholders combined with low cost margins. Insurers also benefit from working with local partners in largely under-penetrated markets and through mircoinsurance they can establish a substantial market presence, putting them in a good position to sell traditional insurance policies going forward. According to a Swiss Re sigma study, the global microinsurance market is estimated to be worth over US$40 billion. The Asia Pacific region is cited as the fastest growing region for microinsurance development, with Africa and Latin America both having smaller, but growing, markets. Swiss Re's three-year partnership with USAID, a federally funded humanitarian organization, will target poor farmers in vulnerable communities on three continents. The two organizations will work together to develop cost-effective strategies that enable these farmers to prepare for and efficiently manage the cataclysmic impact that upcoming droughts, floods and other severe events could have on the livelihoods of themselves and their families. Overwhelming scientific evidence suggests that large natural disasters and other catastrophic weather events have and will become increasingly more common worldwide as a result of climate change. Unfortunately many of the areas that will be most affected by the considerable rise in worldwide temperature will be farming lands, and the communities that rely almost exclusively on them for subsistence. The results of climate change and extreme weather conditions are becoming apparent to insurers too, with floods, droughts, earthquakes, hurricanes and tornadoes all having had a significant impact on insurers' claims and loss ratios over the past few years. It thus becomes incumbent on aid organizations and insurers to build resistance to climate change in these areas and reduce the future costs of natural disasters if possible. Both Swiss Re and USAID recognize that providing farmers in poor areas with the appropriate tools and information to manage risk will enable them to more easily obtain the loans necessary to invest in technologies that improve their crop yields and productivity, a considerable benefit to the whole community. Swiss Re has agreed to contribute its substantial risk management expertise towards assisting two ongoing USAID initiatives in particular. Swiss Re will first address weather-related risks through The Global Climate Change Initiative, which focuses on resisting extreme climate events and accelerating the global transition into a more sustainable low-carbon economic environment to reduce the occurrence of natural disasters in the future. The world's largest reinsurer will also work with USAID on the United States Global Hunger and Food Security effort, which helps emerging market countries develop more stable and productive agricultural sectors to deal with the root causes of widespread hunger and mal-nutrition. More resilient farming systems are urgently required due to the predicted increasing preponderance of extreme weather events and the instability that reaps on agricultural output. Swiss Re's partnership with USAID has come amid a flurry of similar venture activity for the company. In September, the reinsurance group announced two new microinsurance initiatives at the Clinton Global Initiative (CGI) Annual Meeting in New York, USA. At the meeting Swiss Re outlined plans for a new cholera insurance scheme for female entrepreneurs in Haiti, which is designed to tackle the outbreak of the disease on the island nation. Working in conjunction with a local Haitian operation, Swiss Re will offer insurance policies that provide a guaranteed payout once certain health and sanitation conditions are met. It is hoped this policy will build off an effective catastrophe microinsurance scheme developed by Swiss Re earlier in the year. The second plan outlined at the CGI is designed to protect farmers in Senegal from potential crop losses due to climate change and other adverse weather events. To accomplish this, Swiss Re has partnered with Oxfam America, the World Food Program and USAID again, to establish an innovative 'insurance for work' scheme that would give farmers the option to pay for their insurance premiums with their hard labour instead of cash. The initiative was first brought into Ethiopia earlier in the year and is part of Swiss Re's overall US$1.25 million commitment to reinsurance in the region. Participants in the program will work on irrigation and forestry projects in the local area, which are intended to ultimately reduce the impact of climate change and strengthen their communities. Other multinational insurers have come to recognize the importance of microinsurance and want to capitalize on this relatively new line of business for the mix of opportunities it offers, both in business and, of course, in ethics. Canadian insurer Manulife recently announced its intentions to expand its microinsurance operations in Vietnam, a product line that has become integral to their success in the Southeast Asia country. To date Manulife has already sold around 80,000 microinsurance policies in Vietnam, far exceeding the company's expectations. Microinsurance alone made up 6 percent of Manulife's total sales in Vietnam last year. German insurance giant Allianz has also had success in the region, securing over 230,000 new Indonesian customers with microinsurance policies last year. Insurers clearly have the opportunity now to develop policies to meet the protection needs of the more vulnerable element of the world's population. As Michel Liès, Swiss Re's chairman of global partnerships, explained, there is an obligation to increase insurance penetration across the world as it is a frequent contributor to overall economic development."Insurance is a cornerstone of economic growth and stability, and [we at] Swiss Re are proud to contribute our expertise so that even the poorest farmers and their families can cope when crops are ruined by drought, flood or other climate related impacts." Companies Mentioned Swiss Re swiss re The 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 and health insurance as well as special lines such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks. Allianz allianz Allianz Insurance 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. Manulife in Vietnam manulife vietnam Manulife Vietnam was the first 100 per cent foreign-owned life insurance company in Vietnam, beginning its operations in September 1999 as a joint-venture called Chinfon-Manulife Insurance Company (CMIC). Manulife in Vietnam has grown rapidly to become a world class company providing a competitive array of financial protection products and services to Vietnamese customers. Since commencing operations, Manulife has helped more than 300,000 middle to upper-income Vietnamese plan right for their life
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