You can make a difference and make the world a better place. This is what we are here for.
Many people have some doubts whether this statement applies to their jobs.
I have a belief in insurance and in particular microinsurance. In the insurance industry we make a big difference. We enable people to do things that otherwise they would not. Travel? Trade? Make Movies? Take out Loans large and small? To TRUST others? This is what insurance enables.
What could be more important than providing insurance to help someone rebuild their life after a catastrophe —and then in particular, if they are already low-income and vulnerable? This is why I am in insurance, why I believe in microinsurance – microinsurance has the capability to allow people to rebuild after a catastrophe.
Experts agree that increased insurance penetration — including for life, health, property, and livelihoods — supports growth and development, and can protect the most vulnerable. This is where micro insurance can play an important role.
If your clients don’t know about their insurance product, does it even exist?
Is anyone buying Insurance?
One big difference between developing and developed countries is in the level of insurance the populations buy. In the U.S., 2.5 times more insurance is sold than Asia and 4.5 times than in Africa. Why is this? One BIG reason is that almost half of the entire world population is living on under $5.50 per day. So its not surprising that buying standard insurance may not be too important to these people.
Most of the insurance purchased is focused on Life and Accident cover. Property and agriculture cover is purchase is still very low. When a catastrophise hits and devastates property and farms there is limited to no response in developing countries from insurance because there is very limited cover purchased.
Swiss Re (who identifies emerging markets as countries in South and East Asia, Latin America and the Caribbean, Central and Eastern Europe, Africa, the Middle East (excluding Israel), Central Asia, and Turkey) says emerging market premiums rose to $1.1 trillion in 2017 from $939.5 billion in 2016, driven by a strong increase in the life sector. Life sector premiums grew 13.8 percent in 2017, after inflation, compared with 17.1 percent in 2016. Nonlife sector premiums saw 6.1 percent growth in 2017, adjusted for inflation, down from 9.8 percent in 2016.
In India, with around 57 life and non-life insurance companies, has seen a substantial growth. But there has always been a complaint that the products are very generic with a high premium. A generic product gives the broadest coverage but confuses customers with a lot of exceptions and disclaimers. By making it broad-based and expensive, insurance companies also lose out on price-sensitive customers with specific needs.
And yet these people in the ‘developing’ world are the most vulnerable and are the most likely to be devastated by a natural disaster. Small shop owners and farmers are most at risk, as an event can put them back years and deprive them of the limited assets they have and basic necessities.
The microinsurance sector has experienced persistent growth in client outreach and premium volumes over the past ten years. Today, nearly 300 million low-income citizens in developing countries are covered by an insurance policy. New technologies are boosting market coverage. In Asia alone, the number of people insured through mobile phones exceeds 40 million.
Nonetheless, many people are still without cover or alternative risk management options. With the global middle class expected to grow to nearly five billion within two decades, we are looking at billions of people who are without a formal safety net from insurance and hence at risk of falling back into poverty as events take hold.
We now need to respond to this situation by understanding the role of insurance for sustainable development, improving supply, heightening the awareness of insurance, creating the right regulatory framework and better understanding the particular needs of the low-income population is the main focus.
What are and have been the barriers to providing insurance? Tradition insurance products in the developed world are complicated; expensive to obtain; not efficient; sold through a network of professionals; serves contractual norms.
Microinsurance products need to be the opposite of this – from the ground up they need to be designed differently, designed to be fit for purpose, designed for the new users that are in the developing world.
The MicroInsurance Centre promotes the need for “SUAVE” (simple, understood, accessible, valuable and efficient) design.
- Simple: The products need to be simple in benefit structure and have few to no exclusions. Benefits are often a fixed amount.
- Understood: If people don’t understand the product, they won’t buy it. Most of the microinsurance target market are first-time insurance buyers.
- Accessible: Sales need to happen through channels that reach low-income people where they are, such as cooperatives, input suppliers, microfinance banks, or simple mobile phones.
- Valuable: Products need to provide clear value both for clients and for insurers.
- Efficient: A low-income target client has a lower ability to pay premiums. In order for products to be affordable, it’s critical that processes be efficient and low-cost. This often results in low policy limits. It is important that claims are paid quickly.
Some Examples of Microinsurance
- Time-based constraints: A time-based insurance product assumes that a customer is exposed to an equal level of risk over the entire year. Example, if a car stays in a garage for 100 days in a year, why should a customer buy own-damage insurance for the entire 365 days of the year? A microinsurance product that tracks the ‘usage’ of an asset will be much more useful to customers.
- Event-based coverage: Customers are more open to buying insurance before they engage in a specific event. Example, a customer might be interested in looking at a personal accident cover before she goes on a long weekend drive. Once the event is completed, her perception of risk drops significantly and so does the perceived need. Designing ‘micro insurance’ products that specifically cover an event risk reduces the price for the event (i.e. not a year) and increases acceptability among customers.
- Need-based coverage: Insuring your entire home might not make sense while insuring your white goods and TV might. Similarly buying a broad-based health insurance might not be valuable for youngsters but buying a broken-bones insurance might be. Identifying the specific need to the specific profile of customers reduces the cost of insurance.
Microinsurance is focused on property-casualty products
MIC Global is focused on building products globally for both developed and developing worlds. We are using the technology and investment in designing process and systems to the benefit of both parts of the world. We believe that this is where data and tech can be of great benefit. Insurance is changing.
Protecting assets. Protecting businesses. Some examples of insurance types is as follows:
- Property Insurance. Hurricane and Earthquake cover. For example, after Typhoon Haiyan in the Philippines in 2013, more than 110,000 low-income Filipinos received non-life microinsurance claims pay-outs totalling more than $12 million to help them rebuild after the disaster.
- Crop Insurance. Due to the linkage with larger development goals such as food security, a significant amount of funding and resources is being directed to developing, piloting and scaling up both index-based and indemnity-based crop insurance for smallholder farmers. Allianz protects small farms in Burkina Faso and Mali, covering outstanding corn or cotton loans if rainfall is insufficient for proper growth of crops, with pay-outs triggered automatically based on an index.
- Livestock Insurance. Like crops, livestock represents a key source of food and income in many developing markets. Local insurance companies in Kenya provide index insurance to pastoralists, based on assessments of grazing conditions made by satellites measuring the colour of the ground. The product is designed to pay in time to keep livestock from dying, and it is supported by the Kenyan Government, World Bank, International Livestock Research Institute and Swiss Re.
Global Purchases of Insurance Coverage
Agriculture Coverage Rates
Property Coverage Rates
Innovative technology applications play an important role in microinsurance. Mobile network operators are providing coverage to 40 million people in Asia, where nine times out of ten, mobile microinsurance is a person’s first experience with insurance.
Data Analytics, API’s, AI, Machine Learning and Internet of Things (IoT) are all starting to play a role. The ability to design automatic or semi-automatic insurance policies can now be considered. Parametric insurance products have been around for a while and these are now possible to be considered. Known limits and capabilities and events all come in to play. The insurance is purchased for an event – the event is monitored – the payout is made if certain limits or triggers are breached.
A policy for farmers might be based on the amount of damage a certain kind of crop would be likely to sustain in a given area in specific conditions. When conditions reach the trigger point, for example, 100-mile an hours winds in a specific location or a defined amount of rainfall, policyholders in the designated area automatically receive compensation.
By not having to rely on individual claims adjusters to inspect damages and decide the amount of losses, claims can be settled quickly, thus allowing claimants fast access to funds that they might need to keep their business going.
These processes and new skills allow the cost of insurance to be made much more efficient. The efficiency is the key. Traditionally the cost of distribution and cost of claims processes keeps insurance as a expensive luxury. Reduce these costs to small % and suddenly new products can be designed and promoted.
These are all new skills and processes that insurers need to learn and build into their models. New Insurtech companies are heling this process and some are focused on micro insurance and the emerging ‘sharing’ economy.
Moving ahead, microinsurance is not only going to benefit the low-income strata. Companies involved in offering micro plans can equally capitalise on the new insurance model. Currently, India accounts for nearly 65% of Asia’s microinsurance market. This directly points microinsurance sector towards its key profitability which is based upon ‘Low margin – High volume’ revenue model. Large volumes of micro-policies mean more business for the company. Selling larger volumes of microinsurance plans results in increased revenue and scalability.
To summarize, there is immense potential to bring innovative insurance products that leverage technology.
Now, imagine that you are a small shop owner in an area after a severe flood – maybe in India or after a Huricane. Prior to the flood your business earnt you about $6 a day of income, and you are in the process of paying back a $500 microloan that you got to purchase your inventory for the season.
The flood resulted in a need to close the shop for repairs, slowed customers coming by and the inventory was generally spoiled. What to do? You have no money coming in from the shop, you are now faced with having to sell other assest such as your cow (your other source of income from selling milk and calves) or to stop sending your children to school so that you can pay the loan.
This scenario puts you in a worse position, not only have you lost income you still have fixed costs with no way to pay them. You are again sent below the poverty line – failure to pay the load also puts bad rating on you. But what if you had had an insurance product that specifically addressed your needs? Microinsurance is designed to do that.
Microinsurance specifically addresses the risks that low-income people face globally.
Examples in the market place
Weather station for weather-based insurance. Credit, Kilimo Salama
Crop insurance programmes are structured to support different types of losses. Damage-based indemnity insurance is calculated by measuring the percentage of damage in the field soon after the damage occurs. Yield-based crop insurance allows the farmer to insure a percentage of their average yield; if the actual yield is less than the insured yield, a pay-out is awarded. Crop revenue insurance guarantees the farmer a certain level of revenue from the insured crop. This insurance protects the farmer from shortfalls in the yield and also from market price fluctuations.
In developed countries agricultural insurance schemes are often large in scale covering thousands if not millions of mostly large-scale farmers. A critical factor is the cost of insurance provision. Insurers have to accurately assess the risks and measure the damage while at the same time providing farmers with affordable insurance premiums.
Unless these conditions are met the insurance scheme is likely to be unsustainable. Recently a number of pilot projects that offer ‘micro-insurance’ have emerged. Generally, micro-insurance targets low-income smallholder farmers, with limited or no previous exposure to insurance and is based on an observable index.
Boys and cattle in Ethiopia. Credit, G. Berhane Tesfay, IFPRI.
Index-based insurance is calculated by measures provided by meteorological stations, satellite data, or regional-level yield data. The general characteristics of index-based livestock insurance programmes are similar to those for weather and area yield. In 2008, fewer than 80,000 farmers benefitted from agricultural (crop and livestock) micro-insurance in Africa. By 2011, the number of agricultural policies has tripled, now reaching almost 240,000 farmers in 14 countries, representing US$6.61 million in premiums. For example, the Consultative Group for International Agricultural Research (CGIAR) Index-Based Livestock Insurance (IBLI) project uses forage measurements taken from satellites to identify seasonal forage availability. If forage falls below a certain level, pastoralists can use the pay-outs to buy extra feed, medicine for their livestock, or take other livelihood protection measures.
Insurance from MicroEnsure saved George Kamau Githome, who sells movies and hardware supplies from two wooden kiosks he owns in Mathare, one of Nairobi’s largest slums. The small-business owner’s stalls burnt down, leaving him with no source of income to support his two wives and 10 children. “I was crying,” Githome told Devex. “Now where will I start and how will I begin?”
“It struck me that all this great work going on in development was fantastic, but if we couldn’t put a safety net under people that stops them from falling back when inevitably bad things happen, then we’re all wasting our time.”Richard Leftley, EVP Global Sales, MIC Global