Commercial Insurers in Microinsurance: Recent Trends Introduction In the latter half of 0, the authors of this study approached roughly 00 entities that have commercial interest in microinsurance. companies completed the survey, among which are in the top 0 insurance companies of Forbes Global 000 and 6 are local and regional companies. Out of these, companies are involved in microinsurance and are not. The trends reported in this study are based on the responses of the commercial players regarding their involvement in microinsurance. The respondents are comprised of large insurers, i.e. insurers with global presence and featuring in the Top 0 of the Forbes 000 list, 0 medium to small insurers which have a more national and regional focus, brokers with multinational operations, and reinsurer. From a geographical perspective, 9 respondents are based in European countries with operations in developing countries, from Africa, from Asia, from North America, and from South America. The following analysis on both a company and product level is based on data reported from 0 and 0. Main trends at a glance The following broad findings and trends can be noticed: - Demand from the market is cited by the respondents as an important motivator for getting involved in the microinsurance business. - The respondents revenue from microinsurance has grown by % per year over the past years. - The respondents focus on life, endowment, accident and disability, and credit life. - Microfinance institutions are strongly involved in the distribution of respondents microinsurance products. - Among the challenges faced by the respondents when selling microinsurance products, high costs seem to be less of an obstacle now than in the 0 survey. However, lack of familiarity of target population with the concept of insurance, lack of education, and inadequacy of distribution infrastructure remain significant challenges. Note: How is this study different from the study Commercial insurers in microinsurance, undertaken by the Microinsurance Network in 0? Sample size is different: The 0 study consisted of respondents which included 0 insurance companies, brokers and reinsurance companies. Entities of the samples are different: The entities making up the sample in 0 and those from 0 study are different and from different geographical provenance. The 0 study aims to learn from the respondents experiences in microinsurance while the 0 study aimed to acquire some basic statistics to identify general trends from the respondents.
Motivation for involvement in microinsurance 0 0 9 6 0 0 Weighted Frequencies 0 0 0 0 Enter new market Financial profits expectations Corporate Social Responsibility 0 9 Demand from Image / brand market name recognition 6 Expand business to new countries Required by legislation / authorities Others The companies were asked to rank three objectives by order of relevance. The top ranked objective was given points, followed by, then. 0: Figures based on the response of companies ( commercial insurers, reinsurer, brokers). What do the global insurance companies think? The responding global insurance companies look at microinsurance through the lens of emerging markets, so profit expectations are a key driver. Also, microinsurance is considered by many as Corporate Social Responsibility initiatives (60% of the responding global companies, not all involved in microinsurance) and their involvement with microinsurance ventures is often viewed as a brand building effort (0%). How do local and regional insurers look at microinsurance? Local insurance companies see microinsurance as a key effort to enter new markets. The regional insurers visualise the low-income population who comprise the majority of the population in developing countries, as their opportunity to garner new markets as insurance culture evolves in these markets, hoping to upsell to them as the low-income populations make their upward movements to middle income sections of the population. Why are some commercial insurers reluctant to get involved? Most of the responding commercial insurers that do not offer microinsurance products say they are not very informed about microinsurance. Respondents from Europe hold the view that microinsurance is a solution for developing countries, hence there is no value in it for them and they prefer to look at their local markets. For some, it is a matter of image as they position themselves in the higher end of the market and hence microinsurance is of little interest. Regional and local insurers see getting involved in microinsurance as a necessity as they constantly strive to enter new markets. Commercial insurers, especially global majors who are not involved in microinsurance as of now, either see little commercial opportunity in microinsurance or see it as a social responsibility initiative that they hope will give their brands greater recognition.
What are the microinsurance products offered by commercial insurers? The respondents offer a total of 0 microinsurance products, of which % are life insurance products, % non-life insurance products, and % combined life and non-life products. When asked to identify which were the (up to) main and representative products of their microinsurance portfolio, the respondents identified a total of products. Property RISKS COVERED Pension / Saving Funeral Large commercial insurer Index Medium and small insurers Credit Broker Health 6 Life Accident & Disability Number of products 0 0 Figures in this chart are the number of products (out of the products analysed) which cover each type of risk. Of the products, products are offered by the large insurance companies from Top 0 Forbes Global List, 9 by the other small and medium commercial insurers and by brokers. Some products may cover multiple risks. Combined products are represented in each category of risks they cover. % of the products offered are combined products (9 out of ), most of them offering a combination of accident insurance with credit life, life, savings, funeral, property, health or hospitalisation coverage, and in one case even dental. For stand-alone products, the key focus is the same as in the 0 survey: on credit life as well as accident and disability products, as they are perceived to be less costly and easy to administer. However, we are also seeing that health products and index are also offered by the respondents. TARGET GROUPS % Micro-entrepreneurs Farmers % % % % % % % Day labours Microcredit borrowers / Members of microfinance institutions Mobile money account holders Low income families Women Self help groups
The multitude of available products can be explained by the fact that the vast majority of survey respondents consider adapting to the market to be essential when dealing with microinsurance. 6% of the products are voluntary in nature. However, it is the obligatory/bundled products that make up the numbers for the respondents. On average, the number of insured persons covered per voluntary product is at 6,000. However, it pales in comparison to the average coverage of,60,000 insured covered per obligatory product. Clearly, combining a mandatory insurance product with another service, mostly credit, is the key marketing method of the sample studied here. Target groups for the reported products are diverse; % of the products (in aggregate) are directed to professionals, such as micro-entrepreneurs, farmers or day labourers. Other target groups are microcredit borrowers (%), organised groups such as associations of professionals or microcredit self-help groups, mobile money account holders, low income families or women. Credit life, life, and accident coverage account for most of the products and risks covered by the respondents, probably due to the ease in offering and managing these products. Health insurance and index insurance products are the key offerings that the respondents are focusing on as they move forward, in particular large commercial insurers. Obligatory insurance coverage outscores voluntary coverage 0:. Distribution and partnerships Respondents generally put forward affordability, simplicity (only product out of requires a medical check at subscription), service level, higher age limit and flexibility as main selling points for their microinsurance products. The following table summarises what the respondents focus on to make sure that their products are accessible to the clients and successful in gaining market share. Product feature () Product process (0) Marketing element () Brand element () Cost advantages Multiple risks covered Subsidised by government Higher age limit Tailor made Protection starts on day one Adequate protection Simplicity Easy and fast claim process Cash receipt = policy document No medical examination Discount vouchers Bundled with fertiliser Attractive policy certificate Smart card identification system Trust Note: Figures in this table represent the number of times each selling point was quoted by companies.
How flexible are the respondents with premium payment options and frequencies? Premium payment frequency Weekly Monthly Yearly Single/ One-off Number of products (n=) 0 Percentage of products % 6% 9% % % No answer Premium payment mode Cash Bank transfer Phone payment Others No answer Number of products (n=) 6 9 Percentage of products % % % % % There is a high degree of flexibility observed in the premium frequency and modes of payments, and it is probably dictated by the realities of the market and the constraints faced by the clients. Premiums and revenues in microinsurance It appears that pricing of premiums is driven more by the target population s financial capacity than by the risk covered. For example, a funeral insurance product for the Haitian diaspora has higher premium ranges (with commensurate higher coverage) due to the higher financial capabilities of the customer base, which is composed of Haitians living in the United States and subscribing funeral insurance for their relatives living in Haiti, which is a way of repatriating money to the country. For products that are mandatorily attached to the purchase of another product, the insurance premium is often included in the main product price and is thus not visible to the insured. Insurers see this as a main advantage since even a price of USD a month may be dissuasive for some policyholders. Credit Life insurance often uses the same mechanism, where the insurance premium is included in the price of the loan. Estimate microinsurance gross written premium in 0 (USD) Estimate microinsurance revenue in 0 (USD) Average microinsurance revenue growth over the past years Average ratio for profitability in 0 Average of insurers,,0,,9 % % Average of large insurance companies Average of medium and small insurance companies,,,00,000 6% %,,9 9, % % Of the respondents of this study, gross written premiums coming from microinsurance amount to USD,000,000 for respondents from top 0 from Forbes Global 000 and just USD,000,000 for other companies. On average, for the respondents of this study, the microinsurance revenue has grown by % per year over the past years.
Partnerships Microinsurance schemes often use partnerships, mostly for distribution and market development and, more rarely, for providing technical skills such as actuarial services or training. Microinsurance supply has to come from trusted providers who have regular and close interactions with the customers. This is often the case with microfinance institutions, which usually use small, decentralised structures in each village or community. PURPOSE OF PARTNERSHIP Distribution / marketing cooperation Risk-sharing Claims management Subsidies Product design Administration / back-office services Large commercial insurer Medium and small insurer Broker Fronting arrangement Actuarial services Training Premium payment 0 0 0 Frequency DISTRIBUTION CHANNELS Microfinance institutions/banks Agents (microinsurance or others) Cooperatives Employees / internal sales team Retailers or other service providers Government and parastatal Non-governmental organisations Brokers Community based organisations Others* Large insurers Medium and small insurers Broker 0 0 Frequency This chart is based on the products offered by insurers, from the larger insurers from the Forbes Global 000 List, 9 from other commercial insurers and from commercial brokers. Twelve respondents (insurers) quoted microfinance institutions and banks as the main partner for their microinsurance activities, most probably because such institutions already have the customer base and the distribution network, which makes them a potential strong partner for insurers. 6
Brokers involved in microinsurance A number of commercial brokers are involved in the microinsurance business. They often provide insurance companies with a full solution, including product design, actuarial services, brokerage services, premium collection, claims management, and third-party administrator services. Some brokers would also use brand-labelling, meaning the insurance product would bear the broker s brand. The insurer s role would then be limited to bearing the insurance risk and maintaining the appropriate license. Such brokers are experts specialising in the microinsurance market and can propose a huge variety of products: life, credit life, accident, health, funeral, index-based, or property insurance. They distribute products through local partners or units in various countries: Kenya, Madagascar, Senegal, Burkina Faso, Mali, Gabon, Egypt, Palestine, Guatemala, Haiti, etc. They organise the partnering with local distributors like microfinance institutions. Reinsurance of microinsurance products 9% of products within this survey are reinsured. Reinsurance of microinsurance products is generally done as part of the overall reinsurance policy of the insurer s portfolio. Sometimes reinsurance is a local regulatory requirement. Some reinsurers are particularly involved in the provision of reinsurance for microinsurance schemes. The reasons for getting into this market are the same as for other commercial companies. They would generally not have a separate business unit dealing with micro-reinsurance. However, some would have a dedicated team at their headquarters level. Market challenges MICROINSURANCE MARKET CHALLENGES High level of costs Anti-selection Moral hazard / fraud High level of claims Inability to write microinsurance on a profitable basis Unfamiliarity with insurance amongst current and potential policyholders Lack of education of the target population Inability to afford microinsurance products Lack of demand for microinsurance from poor Language barrier 0 Inadequate distribution network Lack of actuarial data Lack of specific expertise in the field of microinsurance Lack of access to reinsurance Local regulations Others 0 0 Frequency Companies offering microinsurance face various challenges, mostly the unfamiliarity of low-income people with insurance concepts. Other important challenges are the lack of education of the target population, inadequate distribution networks, high costs, local regulations, anti-selection, and lack of actuarial data. To overcome these challenges and be successful in microinsurance business,
respondents estimate the key points to be the understanding of low-income clients while building trust, flexibility through offering adapted products, as well as innovation and distribution. Benefits from microinsurance activities Image improvement / increase of brand recognition Entry into a new market 6 Contributing to economic development of the poor Financial profits Development of a good relationship with regulator/government in new markets Acquisition of a new distribution network Large commercial insurer Medium and small insurer Broker Diversification of the insurance risk within the company Driving innovation Expansion of business to new countries 0 0 0 Weighted frequency The participants were asked to rank the three main benefits from microinsurance activities by order of significance: a value of was given to the first benefit mentioned, for the second benefit and for the last. The main benefits respondents get from their involvement in microinsurance are an improved company image, entry into new markets, contribution to the economic development of the poor, and financial profits. This is in line with the motivations for companies to enter the microinsurance business. Interestingly, financial profit expectations are ranked third in motivation for starting microinsurance, while ranking fourth among benefits stated by insurance companies.
Perception of microinsurance and perspective on future trends 00% of the respondents think that microinsurance is a determining factor in improving the condition of low-income households. In terms of profitability for commercial companies, the answers are divided. 0% of the respondents estimate that microinsurance is already profitable and % that it will become profitable within the next years. % of respondents don t have an opinion on this matter. Agree Neutral Disagree Percentages 00% % % 0% 0% % % % % % 9% 9% % % 6% 6% 6% % % Determining factor in improving the condition of low-income households Products are profitable for insurers Products will become profitable for insurers within the next years Microinsurance business will grow by more than 0% in 0 Microinsurance business will grow by more than 00% within the next years Insurance culture among the low-income population will significantly improve in the next years Microinsurance offer will come more and more from commercial insurers rather than informal schemes Despite this uncertainty, respondents are confident that microinsurance business will continue to grow significantly over the next years (6% of respondents think that microinsurance business will grow by more than 00% within the next years) and that it will increasingly come from commercial insurers rather than informal schemes (% of respondents). Close to 0% of respondents agree that the insurance culture among the low-income population will significantly improve in the next three years. Acknowledgements This study was guided by and consulted on by Marie-Amandine Croydon, Véronique Molitor and Praveena Ranganathan for the Microinsurance Network. All feedback can be directed to info@microinsurancenetwork.org 9