Swiss Re’s latest sigma study – “Microinsurance – risk protection for 4 billion people” – emphasizes the relevance of microinsurance as an effective and viable risk management solution for low-income individuals.
“Microinsurance, which has the potential to cover up to 4 billion people, concentrates on few risks today, but its scope is broadening. The interest of insurers in microinsurance lies very much in its future potential,” Swiss Re said.
Microinsurance refers to insurance products especially designed for low-income individuals. The premiums and coverage are kept at a low level in order to make the products affordable and attractive to those policy holders, yet remain commercially sustainable. Currently, the risks covered by microinsurance are heavily tilted towards credit life insurance, but the market could expand to cover areas such as health, agricultural insurance, term life insurance, affordable pension products and other savings products.
Swiss Re points out that by “reaching many individuals who were formerly excluded from insurance, and thereby reducing the vulnerability of low-income individuals and protecting their income streams, microinsurance helps to improve social stability and supports broad-based economic development.”
Amit Kalra, author of the new sigma study stated: “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. It is a win-win situation: Insurers help those who urgently need access to insurance. This in turn supports the long-term economic goals of insurers.”
The study also stresses the “huge untapped market potential at the bottom of the pyramid.” It’s possible that the market could “generate premiums of up to $40 billion. Over the last decade, insurers, NGOs, mutuals and community organizations have launched microinsurance programs across product lines and major markets.
“The key drivers supporting this activity’s growth have been increasing microfinance penetration (in particular microcredit), the active involvement of government in certain markets and need-based product offerings.
Kalra added: “he 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.”
As the microinsurance industry expands, organizations must increasingly cope with rising risk exposure and risk accumulation. This will lead to additional needs for capital and reinsurance solutions that leverage both traditional products and tailor-made innovative solutions. The latter includes, for example, weather derivatives and parametric nat cat solutions.
The largest selling microinsurance offerings are for credit life, a mortality cover bundled with microcredit, but there are other needs as well, notably “higher and broader level of protection that can be met with savings/term life, health and agriculture microinsurance.” There’s also a need to expand infrastructure and to improve regulatory provisions.
Kalra also noted that “NGOs, international developmental organizations and donors have played an instrumental role in aiding the development of the microinsurance sector. The contribution of social-minded entrepreneurs in the field of microfinance and microinsurance has also been influential in encouraging private players to participate in the socially-driven businesses and thereby create new market opportunities for the bottom of the pyramid population.”
Source: Swiss Re
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