A recent report by Mr Matthew Brodsky on the Risk and Insurance portal entitled ‘Microinsurance Has Big Upside’ [1] discusses the vast potential of the microinsurance market. Monica Brand, principal director of the Gateway Microfinance Innovation Fund at Boston-based ACCION International [2], was quoted as stating that microinsurance ‘is taking off in the sense that the commercial insurance is seeing what the commercial banking industry saw … that there’s a huge gap’ in the market.
The report goes on to talk about conventional insurance companies like AIG [3] and Zurich Financial Services (‘Zurich’) [4] which were stated to have been involved in the business of microinsurance since the 1990s. Microcapital.Org has previous published stories on these companies and their microinsurance activities. These have been set out in the Bibliography section below [5], [6]. The report by Mr Brodsky goes on to mention Zurich’s global microinsurance initiative which was started in 2007 and, according to Mr Brandon Mathews who works on that particular initiative at Zurich, experienced a 100 percent growth in revenue last year. According to the report, Zurich has “change-agent types” in the field to get individual programs going, on a trial-and-error basis, with Mr Mathews and ‘other centrally located experts overseeing the big picture’. Zurich will consider introducing life and non-life policies through a variety of distribution channels which can include ‘local utilities, supermarkets, and even cell phones’.
Mr Brodsky goes on to discuss studies recently completed by catastrophe modeler, Risk Management Solutions Inc. (RMS) [7], in conjunction with the Nanyang Technological University in Singapore [8] to assess if earthquake microinsurance would be viable in rural China and the conclusion was that such a product would be. RMS was quoted as stating that selling policies with an annual premium of USD 1.50 to 55 million households would enable insurers to cover the approximate USD 60 million in risk and administrative costs. The report added that ‘RMS envisages an earthquake microinsurance system robust enough to support a USD 300 million primary layer, a reinsurance layer USD 300 million in excess of that, and then a top layer supported with government funds all the way to USD 1.8 billion’. It was stated that RMS currently is in talks with the Chinese government and unnamed carriers to set up a pilot program. RMS is also assessing the viability of earthquake insurance in Gujerat, India. As noted in the report, the idea is to come up with a ‘parametric policy’ similar to the ‘CAT in a box’ triggers that some securitized products have. In simple terms, this means that a physical event of a certain magnitude (often based on an index) must occur for the microinsurance policy to kick in.
As to why conventional insurance firms and professional are looking to get involved in the microinsurance market, some were quoted as stating that they have ‘humanitarian and social’ reasons for doing so. Vice president of model development operations at RMS, Mr Pane Stojanovski, was quoted as stating that the work undertaken by insurance firms ‘should benefit all societies and not just the top of the pyramid’. Ms Brand cautioned that it is important to get the microinsurance product right and that the sector ‘as a lot of gravestones’ to show that simply repackaging conventional insurance products to regular businesses in developed countries will not work. Based on her experience at ACCION, she highlighted the importance of best practices in microinsurance such as minimizing the time it takes to get payment on claims given that for microinsurance clients who live ‘day to day, immediate payment is a must’. She also pointed out microinsurance coverage for liability, health and property policies ‘must also deliver benefits without morale hazards’ and that microinsurance products ‘won’t be credible to the targeted customers unless the ‘tiny print and clauses’–the terms and conditions–are minimized’.
Related stories and paper wrap-ups on the Microcapital.Org portal on the advantages and disadvantages of microinsurance have been referenced in the Bibliography section below [9] – [16].
By Chinq Yee Chong, Research Assistant
Bibliography
[1] Article on the Risk and Insurance portal entitled ‘Microinsurance Has Big Upside’: http://www.riskandinsurance.com/story.jsp?storyId=253945782
[2] ACCION International: www.accion.org/
[3] AIG: www.aig.com/
[4] Zurich Financial Services: www.zurich.com/
[7] Risk Management Solutions Inc. (RMS): www.rms.com/
[8] Nanyang Technological University: www.ntu.edu.sg
[9] MICROFINANCE PAPER WRAP-UP: Emerging Markets in Microinsurance, by Arthur D. Little
[10] MICROCAPITAL STORY: Microinsurance Innovation Facility Opens Second Round of Research Grants
[16] MICROCAPITAL STORY: Scalable and Sustainable Micro Health Insurance Just Around the Corner?
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