Former Manager, BSR
Hilary Fischer-Groban, Former Intern, BSR
For large, commercial insurers, microinsurance is an exceptional example of a dual value proposition: a product that is both responsible and profitable.
Microinsurance policies are simple, low-premium plans designed for low-income clients, typically in the developing world. Protection against small shocks, such as unforeseen health emergencies, can prevent a precarious financial situation from becoming catastrophic. Long considered a complementary product to microcredit loans, research has shown that as a standalone tool, microinsurance can alleviate poverty, improve health outcomes, increase the economic inclusion of vulnerable populations, and even lessen the human impacts of climate change.
With a potential marketplace of 1.5 billion to 3 billion policies globally, microinsurance profits can rise quickly, despite having lower premiums than conventional policies, and profit margins can be similar to conventional insurance policies. Obtaining customers while they are at a lower income level can build lifetime loyalty, and clients may select higher-premium products in the future.
Here are four trends to follow in this emerging industry:
1. Insurance companies are already going micro. Between 2005 and 2012, 26 of the 50 largest global insurance companies began offering microinsurance policies. As additional players enter the market, microinsurance services will likely become more competitive and, therefore, more affordable. German insurance company Allianz has been a pioneer in “macro to micro,” expanding its partnership model from the traditional, such as banks, microfinance institutions, and cooperatives, to the less conventional, including telecommunications companies, retailers, and consumer-goods companies. Allianz currently covers more than 20 million people with microinsurance products. Major insurers like MetLife, Swiss Re, and TIAA CREF have taken a more hands-off approach by investing in Leapfrog, a private equity fund specializing in micro-insurance and other financial-inclusion services.
2. Countries are increasingly creating mandates for microinsurance. Brazil, India, Mexico, Peru, the Philippines, and Taiwan have already implemented some level of regulation, both to support the adoption of microinsurance and to protect consumers. Nigeria, Pakistan, and South Africa are contemplating legislation. These regulations range from requiring that providers use simple terminology in the descriptions of their plans to granting microinsurance companies less restrictive licensing requirements.
3. Microinsurance is an important tool for overcoming poverty—and other development challenges. Research has shown that the benefits of microinsurance can go beyond breaking cycles of poverty. Children in Pakistani families that purchase microinsurance policies have a higher school attendance rate and a lower child labor rate. This holds true even if the family does not receive an insurance payout—with an added financial protection, parents are more willing to keep their children in school.
4. Microinsurance innovation can lead to overall business innovation. Microinsurance companies have come up with creative methods to customize, deliver, and design policies. In Thailand, microinsurance is sold at 7-11 convenience stores and offers special protection during the Thai New Year holiday of Songkran, when the risk of travel accidents is higher. The spread of mobile technology and internet connectivity allows for lower transaction costs for insurers, which helps drive profitability. Product innovations in rural microinsurance include “index-based” products that cover, for example, losses when there are observable variations from standard local rainfall levels or crop yields.
Based on these trends, microinsurance may be the product range that large insurers need to expand into new markets and to accomplish business and sustainability goals simultaneously—including innovation, access to new markets, social impact, and business growth. There are already leaders doing pioneering work in certain regions, but microinsurance is still a new concept in a relatively untapped market. Further product and distribution innovation, adequate market research, and scale are still challenges to expanding micoinsurance. If large insurance companies can remain attuned to regional sensitivities and scale quickly, microinsurance offers a huge opportunity for insurers to penetrate new markets and build a more resilient and inclusive economy.
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