MICROINSURANCE IN COLOMBIA: Lessons and Challenges

Transcription

1 MICROINSURANCE IN COLOMBIA: Lessons and Challenges FPD WEEK 2010 Washington D.C March /37

2 Content 1. Low Income Markets Vs. Traditional Insurance Markets 2. Development of Microinsurance Market in Colombia 3. Distribution Channels 4. Microinsurance for Familias en Acción and Red Juntos 2/37

3 Low Income Markets Vs. Traditional Insurance Markets Different Client Product and Distribution Characteristics 3/37

4 Line of Poverty 58,0 56,0 54,0 55,7 55,1 53,8 52,0 50,4 50,0 48,0 Had fall 11 points 20,3 Millions 46,0 44,0 45, Source: DNP MERPD ENH y ECH 4/37

5 Line of Extreme Poverty 24,0 22,0 21,6 20,0 18,8 19,0 18,0 16,0 14,0 12,0 Had fall 10 points 15,4 12, ,4 Millions Source: DNP MERPD ENH y ECH 5/37

6 The Poor Are More Vulnerable to Risks 35% 30% 25% 20% 15% % 5% % Any serious illness or disease Head of household unemployed Natural Disasters Income Quintile Source: Living Standards Measurement Study Survey, /37

7 The Poor Adopt Perverse Strategies to Cover Losses 30% 25% 20% % 10% 5% % Food expenses were reduced Clothing expenses were reduced Take Their Children Out of the School Incurred debts Savings were spent PERVERSE INFORMAL AND FORMAL Source: Living Standards Measurement Study Survey, /37

8 Household s Monthly Income per Socioeconomic Level < $250 USD 3,2% 5,7% 19,6% $251 - $350 USD 8,7% 22,8% 27,7% $351 - $500 USD 18,3% 24,9% 26,2% $501 - $750 USD 10,3% 20,2% 23,8% $ USD 2,8% 4,5% 11,8% > $1.001 USD 2,4% 6,0% 13,7% NS/NR 12,3% 14,6% 20,6% SEC 1 SEC 2 SEC 3 Source: FASECOLDA - YANHAAS /37

9 Risks Poor People Have Suffered Unemployment 20,8% 27,1% 45,0% Illness 9,5% 15,0% 31,7% Death 10,9% 11,7% 28,0% Theft 14,2% 16,6% 20,7% Traffic Accident 1,0% 9,4% 14,5% Labor Accident 7,0% 7,7% 11,8% SEC 1 SEC 2 SEC 3 Source: FASECOLDA - YANHAAS /37

10 How Poor People Covered Their Risks Loans 55,2% Savings 20,2% Reduce comsuption 8,1% Sell assets 6,5% Insurance 3,7% Lottery and charity 3,2% Look for another income 2,9% Others 0,4% Source: FASECOLDA - YANHAAS /37

11 Different Product Characteristics Products that respond to the protection needs of low income people. The costs are high in training agents and in educating the clients. In that regard, policies should be easy to understand and to explain. Periodical payments regarding their cash flow. The scale of operation must be very small in terms of premiums but in high volumes. Microinsurance is not an economic version of traditional products. Easy to sign: without previous inspections, special conditions to be a policyholder and moral hazard. No exclusions. 11/37

12 Different Product Characteristics Easy to collect the premium thanks to the alliances with utilities services, microfinances institutions and retailers, among others. Easy to compensate. Fast payment and without many requirements. Claim process could not be the same for an insurance value of 100 thousands dollars than for an insurance value of one thousand dollars. Payment process with minimal verifications. Evidence could replace some requirements which are needed in traditional insurance products. Products are meant to be used, so the best reward in terms of client confidence is to pay with minimal conditions. 12/37

13 Development of Microinsurance Market in Colombia Reasons and Results 13/37

14 Reasons and Lessons In regards to the Planning National Department, in 2006 there were 20,3 Million people in poverty in Colombia (41%) and 5,4 Million people in extreme poverty (12%) Poor are more vulnerable to risks and they are not able to face them properly. Low insurance penetration. According to Sigma 2008, 2,2% measure how premiums / GNP Larger potential market. The development of microinsurance has been based on market solutions, where companies compete by offering alternative combinations of products and coverage, through different distribution channels. 14/37

15 Lessons From The Colombian Experience Colombia is a country case where microinsurance has been developing rapidly through the private sector initiative, without any special laws, rules or regulations. According to the Microinsurance Center and our own statistics there are three million policiyholders. Microinsurance encompasses more than 1,3% of all premiums. 15/37

16 Microinsurance Providers More than 40% of insurance companies in Colombia (national and foreign capital based, mutual cooperatives and one state-owned) already offer some type of microinsurance products. Cooperative insurance companies have had microinsurance operations for more than 15 years. They have had to adjust their internal process to serve low income people. Licensed and regulated providers ensures client protection. A microinsurance business not as a special line of business or a special insurance company, but as a product under the regular lines of business, allows the application of the large numbers law and permits internal cross subsidies which ensure the viability and sustainability of this new kind of business. 16/37

17 Issued Premiums December 2009 Dec-08 Dec-09 Issued Premiums (USD Millions) % Issued Premiums (USD Millions) % Growth Funeral $ 31,7 54,2% $ 31,0 41,2% -2,2% Life $ 16,3 27,8% $ 25,7 34,3% 58,2% Accidental D. $ 7,5 12,8% $ 13,3 17,7% 77,6% Others $ 3,0 5,2% $ 5,1 6,8% 66,9% Total $ 58,5 100,0% $ 75,1 100% 28,4% Includes: AIG, ALFA, A<LICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA y SURA Does not include: EQUIDAD y CARDIF Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

18 Total Issued Microinsurance Premium / Total Industry ,32% Primas Emitidas Total Industria Primas Microseguros Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA y SURA Does not include: EQUIDAD y CARDIF Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

19 Policyholders December 2009 Dec Dec Policyholders % Policyholders % Growth Funeral ,7% ,6% -7,5% Life ,0% ,7% 37,7% Accidental D ,7% ,8% 6,3% Others ,7% ,9% 72,0% Total ,0% ,0% 19,0% Include: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA Does not include: EQUIDAD, CARDIF y SURA Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

20 Average Monthly Premium Dec-08 Dec-09 Average Anual Premium Average Monthly Premium Average Anual Premium Average Monthly Premium Growth Funeral $ 40,6 $ 3,4 $ 42,9 $ 3,6 5,7% Life $ 17,8 $ 1,5 $ 20,5 $ 1,7 14,9% Accidental D. $ 11,4 $ 0,9 $ 19,0 $ 1,6 67,1% Others $ 10,6 $ 0,9 $ 10,2 $ 0,9-3,0% Total $ 22 $ 1,9 $ 23,9 $ 2,0 6,5% Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA Does not include: EQUIDAD, CARDIF, SURA (1) Note: The anual average premium in funeral services corresponds to the whole nuclear family, meaning 4 people in average per house. This means that the anual premium per person in funeral services is in average 11 dollars. Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

21 Average Insured Value Dec-08 Average Insured Value Dec-09 Average Insured Value Growth Funeral $ $ ,4% Life $ $ ,7% Accidental D. $ $ ,9% Others $ $ ,2% Total $ $ ,1% Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA Does not include: EQUIDAD, CARDIF y SURA Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

22 Paid Claims December 2009 Dec-08 Dec-09 Paid Claims (USD Millions) % Paid Claims (USD Millions) % Growth Funeral $ 21,5 78,9% $ 18,9 72,2% -12,5% Life $ 4,5 16,5% $ 5,6 21,6% 25,2% Accidental D. $ 0,8 3,1% $ 1,0 3,8% 18,3% Others $ 0,4 1,4% $ 0,6 2,4% 58,1% Total $ 27,3 100,0% $ 26,1 100,0% -4,3% Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA y SURA Does not include: EQUIDAD y CARDIF Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

23 Number of Paid Claims December 2009 Dec Dec No. Paid Claims % No. Paid Claims % Growth Funeral ,7% ,0% 1,8% Life ,8% ,9% 41,7% Accidental D ,6% ,7% 35,6% Others ,9% ,3% 17,1% Total ,0% ,0% 8,2% Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA y SURA Does not include: EQUIDAD y CARDIF Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

24 Average Paid Claims Dec-08 Average Paid Claims Dec-09 Average Paid Claims Growth Funeral $ $ ,0% Life $ $ ,8% Accidental D. $ 424 $ ,8% Others $ 347 $ ,0% Total $ $ ,2% Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA Does not include: EQUIDAD, CARDIF y SURA Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

25 Paid Claims Ratio dec-08 Paid Claims Ratio dec-09 Paid Claims Ratio Growth Funeral 68,0% 60,9% -10,5% Life 27,7% 21,9% -20,9% Accidental D. 11,3% 7,5% -33,4% Others 13,0% 12,3% -5,3% Total 46,7% 34,8% -25,5% Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE, SOLIDARIA Does not include: EQUIDAD y CARDIF Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

26 Distribution Channels Where is the success? 26/37

27 Different Distribution Characteristics Sign alliances with proper distribution channels that know the market and ensure easy access to the same. The channel should ensure fast and massive sales, and the collection of premiums. The distribution of microinsurance products is easier when done along with other financial and non financial services. Distribution mechanisms ought to be innovative, low cost and massive. Most used channels: Utilities Services, MFI, Cooperatives, etc. 27/37

28 Access to Utilities 95,8% 97,2% 87,3% 86,7% 83,8% 72,9% 73,9% 35,3% 47,4% 54,7% 44,3% 17,7% Electricity Aqueduct Sewer system Town gas Phone Mobile phone Source: DANE ECV /37

29 Issued Premiums per Channel December 2009 Dec-08 Dec-09 Issued Premiums (USD Millions) % Issued Premiums (USD Millions) % Growth Banks $ 3,6 6,5% $ 6,7 9,5% 85,1% Familiar Benefits Unions $ 0,5 0,8% $ 0,8 1,2% 74,7% Cooperatives $ 24,3 43,9% $ 22,5 32,1% -7,3% Utilities $ 18,9 34,0% $ 27,4 39,0% 45,1% MFI $ 5,6 10,2% $ 9,7 13,8% 72,0% Supermarkets $ 1,1 1,9% $ 1,2 1,7% 12,9% Others $ 1,5 2,6% $ 1,9 2,7% 31,7% TOTAL $ 55,4 100,0% $ 70,2 100,0% 26,8% Does not include: EQUIDAD y CARDIF Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

30 Policyholders per Channel December 2009 Dec-08 Dec-09 Policyholders % Policyholders % Growth Banks ,8% ,6% 139,8% Familiar Benefits Unions ,2% ,3% 46,5% Cooperatives ,9% ,3% -17,1% Utilities ,6% ,0% 42,8% MFI ,3% ,7% 52,4% Supermarkets ,6% ,3% -78,5% Others ,6% ,8% 74,3% TOTAL ,0% ,0% 19,0% Does not include : EQUIDAD,CARDIF y CARDIF Source: FASECOLDA 2010 Microinsurance Preliminary Results up to December /37

31 Microinsurance for Familias en Acción and Red Juntos The Challenge 31/37

32 Who are Familias en Acción & Red Juntos Familias en Acción is a Cash Conditional Transfer program in which 3 million families in poverty or extreme poverty with children below 18 years old, receive, per each child, a subsidy to keep children at school and to meet nutrition standards. The CCT is $50 dollars, given every month through a saving account (2 million families) Familias Red Juntos is a program that identifies the extremely poor and picks up a baseline, which is composed of 45 goals in 9 areas (housing, banking, education, health, etc). The program encourages 1,5 millions families to meet the goals, otherwise they will continue in the extreme poverty. 32/37

33 Who are Familias en Acción & Red Juntos Red Juntos does not give subsidies, it just gives an accompaniment to the families through a person who is called the Cogestor and whose goal is to take out the family from the poverty. The aim of the program is to bring near the families the different public and private services supply, which could help them reach the goals and thus, overcome the poverty. One of the goals is financial education and access to microinsurance. To meet that goal, Acción Social (the policy of the government in charge of both programs),the insurance industry, paralife and multilaterals are working on: 33/37

34 The Project Setting up a fund with multilaterals and government resources to insure 1,5 millions families, subsidizing 100% of the premium the first year, 70% second year and 40% the third year. The insured value of the life insurance should be at least $1.000 dollars and the premium 3 or 3,5 dollars per year. No exclusions, no conditions. 72 hour for paying claims. Government would like that all insurance companies to join to this initiative, and that is the reason why Fasecolda was inviting. Companies interested in participating will create a risk pooling. 34/37

35 The Project A portion of the fund s resources will focus on the financial education program. (Fasecolda has developed for two years a program like that through workshops and is going to launch the radio program next May). Insurance companies have to commercialize a voluntary product to cover the wife or husband. Insurance companies have to develop an innovative idea to collect the premium since the second year of the project and utilities look like one of the possible distribution channels. 35/37

36 Final Comments Colombia is a case where microinsurance has had a fast development through the private sector s initiative, without any special laws, rules or regulations. The development of micro insurance has been based on market solutions. The biggest challenge is selecting the appropriate distribution channel that ensures massive sales and the colletion of the premium. Insurance and financial culture must be encouraged. The access to insurance from the poorest of the poor could be encouraged through public private initiatives as the one we are working on. 36/37

37 Thanks! 37/37