Micro insurances: Protection Against the Poverty. Micro Insurances. November 2007

Transcription

1 Micro insurances: Protection Against the Poverty

2 Index 1. Presentation 2. Poor people and micro insurance 3. Micro insurance: business opportunities that reduce poverty 4. Micro insurances in Colombia 4.1 Demand 4.2 Supply 5. Conclusions about Demand and Supply Studies

3 Index 1. Presentation 2. Poor people and micro insurance 3. Micro insurance: business opportunities that reduce poverty 4. Micro insurances in Colombia 4.1 Demand 4.2 Supply 5. Conclusions about Demand and Offer Studies

4 FASECOLDA Who We Are and What We Make? Fasecolda, is an association which gathers and represents the insurance companies in our country. Generate an insurance culture. Improve the insurance penetration in the Colombian society. Give technical assistance to our associates, and other services. Protect the insurance industry image Adopt policies and programs to keep and improve good practices among companies.

5 Organization INSURANCE COMPANIES DIRECTOR S BOARD Executive President Vice president TRANSVERSAL AREAS TECHNICAL CHAMBER OTHER ENTITIES Legal Financial Economic Studies Communication International Relationships Vehicle Life SOAT Social Security Transport Labor Risks INS (Technical Education) FUNDASEG (Non profit) INVERFAS (Technology - Information)

6 Associated Companies ACE Seguros AIG Colombia Generales AIG Colombia Vida Alfa Aurora BBVA Seguros Bolivar QBE Central de Seguros Chubb Colmena Colpatria Colseguros Confianza Cóndor Crediseguro Equidad Estado Generali Global Education Alliance Liberty Mapfre Mundial Pan American Previsora Previsora Vida Royal & Sun Alliance Segurexpo Solidaria Suramericana Suratep ARP

7 Index 1. Presentation 2. Poor people and micro insurance 3. Micro insurance: business opportunities that reduce poverty 4. Micro insurances in Colombia 4.1 Demand 4.2 Supply 5. Conclusions about Demand and Offer Studies

8 Base of the Pyramid Million of people Purchasing Power 75 a 100 More than US$ 55 daily a From US$ 4 to US$ 55 daily Más de Less than US$ 4 per day Base of the Pyramid Fuente: C.K. Prahalad

9 Added Purchasing Power In the world more than million people have less than US$ 1500 annual incomes. According to the World Resource Institute the 70% of Latin-American and Caribbean people (361 million people) compose the base of the pyramid (BoP) In Colombia 57% of the people, 25 million approximately are named the BoP The world s BOP has potential market worth 5,000 billion US$ - Latin America: 509 billion US$ - Colombia: 42 billion US$

10 BoP Distribution ,0 People on BoP (million) 1.000,0 100,0 10,0 Panamá Uruguay Rusia Colombia India Nigeria Ethiopia México 1,0 0, , , , , , , , , , ,0 LAC Africa Bangladesh Asia Europa Oriental China Brasil Added Income of the BoP

11 Poverty in the Region % of households below the line of poverty, it means, earn or spend less than a dollar per person 25 24,01 % de los hogares ,53 1,84 1,9 2,79 6,02 6,59 7,59 7,63 10,53 13,56 13,93 15,78 18,7 20,41 Chile Costa Rica México Rep Dominicana Panama Argentina Brazil Colombia Peru Paraguay Guatemala Ecuador Venezuela El Salvador Bolivia Source: World Bank, Data Base of Millenium Goals. Note: Datos para Brasil, Rep. Dominicana, Mexico 2004: Argentina, Chile, Colombia, Costa Rica, Panama, Paraguay, Peru, Venezuela 2003: El Salvador, Guatemala y Bolivia 2002: Ecuador

12 Income Distribution in the Region 4 Income In the Lowest Quintile Of the Population % ingreso / consumo ,87 2,42 2,32 2,31 2,31 2,3 2,09 2,01 1,92 1,9 1,73 1,72 1,65 1,61 1,28 0 México Rep Dominicana Peru Costa Rica Venezuela Chile Ecuador Argentina Guatemala El Salvador Panama Brazil Paraguay Colombia Bolivia Source: World Bank, Data Base of MIllenium Goals. Note: Datos para Brasil, Rep. Dominicana, Mexico 2004: Argentina, Chile, Colombia, Costa Rica, Panama, Paraguay, Peru, Venezuela 2003: El Salvador, Guatemala y Bolivia 2002: Ecuador

13 Colombia and Poverty In 2000, 189 States, including Colombia, adopted the Development Millennium Goals against the poverty, the hunger, AIDS, etc. According to the Colombian National Planning Department, in 2006, there were 20,3 million poor people and 5,4 million people in extreme poverty in our country. The Colombian Government strategy against poverty, include the access of the poor at the financial formal services.

14 Index 1. Presentation 2. Poor people and micro insurance 3. Micro insurance: business opportunities that reduce poverty 4. Micro insurances in Colombia 4.1 Demand 4.2 Supply 5. Conclusions about Demand and Supply Studies

15 Definitions Microinsurance Centre Those which a company designed and offer to the poor people. Protecting the Poor: A Microinsurance Compendium Protection within reach of low-income people against specific losses in exchange for regular payment of a premium proportional to the probability and cost of the accident. The micro insurance is for people generally ignored by the mainstream commercial insurance and social security schemes. Fasecolda Insurance with limited coverage and small premiums aimed at alleviating the economic losses of the poorest.

16 People Covered By Micro insurance In The World s Poorest Countries 67 Millions Source: The Landscape of Microinsurance in the World s 100 Poorest Countires, Microinsurance Centre, ,8 2,6 3,5 ASIA LAC COLOMBIA AFRICA Asia includes: Turkmenistan, Pakistan, India, Sri Lanka, Nepal, China, Bangladesh, Laos, Cambodia, Vietnam, Filipinas, Indonesia LAC includes: Guatemala, Nicaragua, Panama, Dominican Rep., Colombia, Venezuela, Ecuador, Peru, Bolivia, Paraguay Africa includes: Mauritania, Senegal, Mali, Burkina Faso, Ghana, Togo, Benin, Nigeria, Cameroon, Gabon, D. R Congo, Rwanda, Uganda, Tanzania, Zambia, Malawi, Comoros y Madagascar.

17 Potential Market Size 97,4% 92,9% 89,8% 98,8% BOP % with Microinsurance BOP % without Microinsurance 2,6% 7,1% 10,2% 1,2% Asia LAC Colombia Africa Source: The Landscape of Microinsurance in the World s 100 Poorest Countires, Microinsurance Centre, 2007; The Next Four Billion, BM, Asia includes Bangladesh, Cambodia, China, Filipinas, India, Indonesia, Nepal, Paquistan, Sri Lanka, Vietnam; LAC includes Bolivia, Nicaragua, Ecuador, Guatemala, Paraguay, Venezuela, Peru, Colombia, Panamá; Africa includes Burkina Faso, Camerún, Gabón, Malawi, Mali, Nigeria, Ruanda, Senegal, Tanzania, Uganda, Zambia

18 The Poor are More Vulnerable to Risks 35% COLOMBIA SHARE OF HOUSEHOLDS THAT SUFFERED ECONOMIC HEALTH AND NATURAL DISASTER SETBACKS, BY INCOME QUINTILE 30% 25% 20% % 10% 5% 0% Any serious illness or disease Head of family unemployed Natural Disasters 5 Source: Living Standards Measurement Study Survey, 2003

19 The Poor Adopt Perverse Strategies To Cover Losses COLOMBIA STATEGIES ADOPTED IN THE EVENT OF ECONOMIC SHOCKS BY INCOME QUINTILE % OF HOUSE HOLDS PER QUINTIL 25% 20% 15% 10% 5% 0% Food expenses were reduced 5 Clothing expenses were reduced Other household members started to work Incurred debts Savings were spent PERVERSE INFORMAL AND FORMAL Source: Living Standards Measurement Study Survey, 2003

20 Micro insurance: A Formal Instrument That Mitigates Risks Insurance product of limited coverage and small transaction values that are offered to low income households. Households may overcome poverty traps. Microinsurance allows these households to invest in riskier but more profitable productive activities. Allows the poor to smooth consumption through indemnization payments in case losses occur.

21 Consequences of Risks in Low Income Population OVERCOMING POVERTY HOUSEHOLD 3 HOUSEHOLD 3 POVERTY HOUSEHOLD 2 HOUSEHOLD 3 EXTREME POVERTY HOUSEHOLD 1 HOUSEHOLD 2 HOUSEHOLD 2 GRAY AREA HOUSEHOLD 1 HOUSEHOLD 1 Without Insurance Within Insurance

22 Index 1. Presentation 2. Poor people and micro insurance 3. Micro insurance: business opportunities that reduce poverty 4. Micro insurances in Colombia 4.1 Demand 4.2 Supply 5. Conclusions about Demand and Supply Studies

23 About the Survey Inquiry demand made by Remolina Estrada in 2006 and bought by Fasecolda. Sample size: Colombian households. Date: From June 4 th, 2006 to June 30 th, 2006 Personal interview with an average duration of 2 hours each interviewee. Overall margin of error: 3% Estimated Level of confidence 95%.

24 Social Economic Level (Sel) SEL 6 12% SEL 5 13% SEL 4 15% SEL 3 32% SEL 2 28% 0% 5% 10% 15% 20% 25% 30% 35% Source: Fasecolda and Remolina Estrada 2007

25 Occupation Freelance Employed Retired Household Student Unemployed 45% 44% 7% 3% 1% 0.2% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% The high portion of freelance workers represents a challenge to insurance companies due their income instability. Insurance products must be flexible to adapt to the insured s income flow. Source: Fasecolda and Remolina Estrada 2007

26 Low Income Households Are More Exposed To Risks Frequency with which households suffer losses. SEL 6 32% 65% 2% SEL 5 2% 46% 44% 8% SEL 4 4% 55% 35% 4% SEL 3 4% 65% 26% 4% SEL 2 12% 65% 13% 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Always Frequently Sporadically Never Doesn't know Source: Fasecolda and Remolina Estrada 2007

27 Type of Loss They Are Exposed More Frequently Type Of Loss SEL 6 10% 12% 40% SEL 5 12% 21% 31% SEL 4 21% 24% 14% SEL 3 26% 24% 10% SEL 2 30% 23% 7% 0% 10% 20% 30% 40% 50% 60% Unemployment Serious illess / High risk surgery House vehicle has broken down Source: Fasecolda and Remolina Estrada 2007

28 Poor Households Underestimate Risk SEL 6 13% 14% 54% 19% SEL 5 13% 14% 59% 14% SEL 4 27% 7% 58% 8% SEL 3 25% 12% 57% 6% SEL 2 29% 13% 54% 4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% I am confident nothing bad is going to happen and I assume the risks I am aware of some risks but I don't see it necessary to protect against them I am aware of the risks and protect my self against the most important ones I am aware of the risks and I totally protect my self against them with insurance Source: Fasecolda and Remolina Estrada 2007

29 Households Cover With Own Resources The Main Portion Of Losses SEL 6 72% 1% 27% SEL 5 66% 1% 2% 30% 1% SEL 4 61% 2% 6% 31% SEL 3 67% 2% 3% 28% 1% SEL 2 72% 1% 3% 23% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Self-owned of family resources Personal Loan (with a nonfinancial institution) Property was not replaced / Loss continues Loan with a Financial Institution Insurance bought previously Source: Fasecolda and Remolina Estrada 2007

30 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Know About Insurance % OF HOUSEHOLDS WITH DETAILED KNOWLEDGE % DE HOGARES QUE TIENEN CONOCIMIENTO DETALLADO DE LOS OF INSURANCE SEGUROS 79% 58% SEL 2 and 3 Estratos 2 y 3 Estratos 4, 5 y 6 SEL 4, 5 and 6 37% 23% 14% 10% Funeral HogarRites Life Vida Property Exequiales Poor households have a lower knowledge of insurance. There is a low awareness of funeral rites insurances and a very high knowledge in home insurances. This indicates the need to make education campaigns on insurance Source: Fasecolda and Remolina Estrada 2007

31 Insurance By Social Economic Level % OF HOUSEHOLDS WITH 1 OR MORE INSURANCE POLICIES 60% 50% 40% SEL 2 and 3 SEL 4, 5 and 6 30% 20% 10% 0% Funeral rites Property Life Source: Fasecolda and Remolina Estrada 2007

32 Insurance Or Gambling? Low income population spends the same proportion in insurance products as in lottery games. Notwithstanding, the death probability at 30 years is more than 50 times the probability of winning the lottery. Insurance and financial culture must be promoted % of households annual expenses* SEL 4, 5 and 6 3.0% 1.1% SEL 2 and 3 2.1% 2.1% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% Insurance Lottery / "Chance" / Gambling * Data corresponds to households that made both expenses. Source: Fasecolda and Remolina Estrada 2007

33 How Do Households Perceive Voluntary Insurance? * SEL 6 SEL 5 5% 8% 8% 8% 73% 67% 3% 10% 10% 7% The predominant perception is that insurance is a fundamental need. SEL 4 SEL 3 SEL 2 11% 12% 13% 7% 9% 6% 43% 46% 57% 24% 31% 18% 5% 6% 3% 4% 4% However, low income households view insurance as a luxury or as necessary but unattainable service. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Luxury Fundamental / basic need Necessary evil Obligation Necessary but unattainable S/thing that cannot be understood *Life, home and vehicle insurance are included. The questions was asked for a basket of insurance voluntary insurance products which include Life and Property and Casualty. Limited budget is a barrier poor people face to purchase insurance Source: Fasecolda and Remolina Estrada 2007

34 Poor Families Favor Monthly Premium Payments SEL 6 38% 3% 8% 19% 31% SEL 5 35% 5% 14% 13% 15% 16% SEL 4 39% 6% 13% 8% 12% 22% SEL 3 39% 7% 10% 15% 11% 19% SEL 2 56% 5% 7% 7% 8% 16% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Monthly Bimestral Quaterly Half-Yearly Only Payment Not interested Source: Fasecolda and Remolina Estrada 2007

35 Index 1. Presentation 2. Poor people and micro insurance 3. Micro insurance: business opportunities that reduce poverty 4. Micro insurances in Colombia 4.1 Demand 4.2 Supply 5. Conclusions about Demand and Supply Studies

36 About the Survey Inquiry supply made by Fasecolda Sample size: 10 Colombian insurance companies. This represents 54.7% of total premiums written until June 2007 Date: March and April 2007 Deep personal interview. Micro insurances definition used : Financial service provided to low income people, specially, social economic level from 1 to 3, independent distribution channel. Characteristic of the survey: Divided into four parts: Product Description Marketing Technical Information Other

37 Companies Offering Micro insurance Without microinsurance 59% DISTRIBUTION OF COMPANIES IN COLOMBIA With microinsurance 41% EQUITY OWNERSHIP Foreign 50% National 50% Source: Fasecolda 2007

38 Number of Products of Micro insurances Brought to the Market 4 Number of Products YEARS Source: Fasecolda 2007

39 Participation According Branch Business Data in thousands of dollars RAMOS Business Line Value VALOR % Property Life Propiedad % Vida % Funeral Rites Labor Risks Exequial % Riesgos Profesionales % TOTAL % Total Sector Total Industry % of Micro insurance Participation % de Participación Microseguros 4,43% Source: Fasecolda 2007

40 Micro insurance: Issued Premiums Share of Microinsurance in Total Premiums Issued december 31, 2006 Microinsurance 5% Other insurance 95% W.C 1% Share of Microinsurance by Business Line Life 16% Funerals 4% Source: Fasecolda 2007 Property 79%

41 Number of Micro Insurance Policies Life 14% ISSUED POLICIES (december 31, 2006) WC 2% Funeral rites 24% Property 60% TOTAL 2,741,656 Source: Fasecolda 2007

42 Basic coverage Personal Accidents 5% Work Accidente / Occupational Diseases 5% Damage, Theft 5% Fire and earthquake 20% Life / Permanent or Total Disability 45% Life 10% Funeral Rites 10% Source: Fasecolda 2007

43 Adicional Coverage Life TYPE OF INSURANCE Property COVERAGE Permanent and total disability Serious Illness Expenditure on household Aid funeral Dismemberment Organ Transplant Medical expenses by accident Income for hospitalization Monthly Income education for the children Home Assistance Coverage for electrical equipment Personal Accident Theft Liability Micro insurance have been designed according to demand, acknowledging the existence of different risks depending on the population they are targeted. This allows companies differentiate their products and compete with each other. Funeral Rites Monthly income to the family of the injured party

44 Some Exclusions TYPE OF INSURANCE RESTRICTION DESCRIPTION Life Age Genre Occupation Medical History Other years It does not discriminate High-Risk Activities Previus condition Homicide Terrorism Malevolent Acts Property Other Materials cosntrucción not solid Use the property in other than family home Funeral Rites Age Older than 70 years

45 Premium And Payment Frequencies Most products have both a monthly coverage and payment frequency At maturity 5% Coverage Period Monthly 40% It provides the insured large flexibility. Annual 55% Annual 10% Payment frequency Monthly 90%

46 Price Of Micro insurance Premiums More than $4 dollars Number of Microinsurance Products According to Monthly Premiums 4 $3 - $4 dollars 5 $2 - $3 dollars $1 - $2 dollars 4 7 Less than $1 dollar 2

47 Distribution Channels 22% 22% 9% 18% 11% Cooperatives Microfinancial NGO's Public Service Invoices 18% Direct sale Bancassurance Others

48 Operation Scheme COMPAÑIES NGO s Microfinancial Cooperatives Compensation Entities Others Sales Force / Credit Analysts / Advisors CLIENTS Source: Adaptation from Suramericana

49 Some Distribution Examples Companion-Agent: Provide micro insurances between Microfinancial NGO s and Banks. Some Companies: Colseguros, La Equidad. Some Products: Life and Damage Cooperatives and Mutuals: Provide through cooperatives. Some Companies: La Equidad, Solidaria. Direct Sale: Include sale through home services such as water and electricity Some companies: Previsora - Aguas de Manizales Mapfre - Codensa AIG - Gas Natural Liberty - Telecom

50 Loss Payment Lapse Time Between Claim and Payment 30 days 35% By accident type (WC) 5% Immediate (funeral rites) 10% 48 hours 5% 2 days 5% 15 days 15% 10 days 25%

51 Product Examples LIFE MICROINSURANCE (USD) PLAN 1 PLAN 2 Life and TPI $ $ Serious illness (50%) $ 670 $ Home expenses $ 335 $ 558 Funerary rites $ 134 $ 223 Monthly premium $ 1 $ 1,7 Source: Microinsurance Survey - FASECOLDA PROPERTY MICROINSURANCE USD 100% asset value Fire, lightning, earthquake (constructions and contents) and/or flood damages Assistance $ 121,5 Monthly premium $ 2,6 Source: Microinsurance Survey - FASECOLDA

52 Index 1. Presentation 2. Poor people and micro insurance 3. Micro insurance: business opportunities that reduce poverty 4. Micro insurances in Colombia 4.1 Demand 4.2 Supply 5. Conclusions about Demand and Supply Studies

53 Colombian Experience Colombia is a successful case where micro insurance has been rapidly developing through private sector initiative, without any special laws, rules or regulations. According to the Microinsurance Center and our own statistics there are more than three million policies issued and micro insurance encompasses more than 5% of all premiums. The development of micro insurance has been based on market solutions, where companies compete by offering alternative combinations of products and coverage, through different distribution channels.

54 Colombian Experience We have confirmed that the commercialization of micro insurance products is easier when done together with other micro financial services. The provision of micro insurance should be done by insurance companies in a competitive environment within their authorized lines of business. policies are not standardized The experience indicates that the scale of operation must be very small in terms of premiums but in high volumes, and that the process should be innovative, both in terms of product combination and in distribution mechanisms, which ought to be low cost and massive. Policies must be easy to understand and to explain.

55 Challenges Insurance and financial culture must be encouraged. Invest in training agents and in educating the clients. it is extremely important not only for consumer protection, but also for establishing a competitive environment that informal insurance providers be formalized We think that the access to insurance to the poorest of the poor could be encouraged thorough fiscal incentives to companies providing targeted micro insurance products to such income groups. Fiscal incentives are appropriate to reduce rates when we consider that among such income groups risks and distribution costs are higher

56 In Conclusion Colombia shows an outstanding development of microinsurance practices However, only 10% of the BOP is covered. Poorest households are more exposed and they underestimate risks. Risks are mainly covered with own resources and inappropriate strategies. Poor households spend the same on gambling and lottery as they do on insurance. 41% of Colombian companies provide some type of microinsurance There is a great variety of coverage's being offered. Micro insurance development in Colombia is based on market solutions.

57 In Conclusion Micro insurance have focused on the urban sector. The biggest challenge is the generation of the culture of insurance, selecting the appropriate distribution channel and ensuring the collection.in Colombia, insurance companies understand well that micro insurance, besides becoming a line of business should also be part of the companies social responsibility agenda.

58 Thanks