MICROFINANCE PAPER WRAP-UP: Insurance in Developing Countries: Exploring Opportunities in Microinsurance, by Lloyd’s 360 Risk Insight and MicroInsurance Centre L.L.C.

Published by Lloyd’s 360 Risk Insight and the MicroInsurance Centre in November 2009, 38 pages, available at: http://www.lloyds.com/NR/rdonlyres/5CFE7CAF-0075-415C-B0F2-BEBF0323059E/0/Microinsurancereport_Nov2009.pdf

Produced by Lloyd’s, an insurance and reinsurance market, and the MicroInsurance Centre, a consulting and advocacy company, this report describes the current landscape of microinsurance and lays out the means and benefits of entering this emerging market.

According to the report, the market for microinsurance in developing countries is estimated to be between 1.5 and 3 billion people for products ranging from health and life, to agricultural and property, to catastrophe insurance. Currently, microinsurance covers only about 5 percent of the potential market, or 135 million people (p.11).

While the report primarily focuses on commercial insurers that provide for-profit microinsurance products, other providers it mentions include reinsurers, non-governmental organizations, post offices and microfinance institutions (MFIs). In fact, “microinsurance is often sold by microcredit organizations, and often offered in combination with loans. Some MFIs sell insurance as an additional service. Others make insurance compulsory for their clients, for reasons ranging from reduced credit risk to building an insurance culture” (p.7). Commercial insurers, however, remain the largest suppliers of microinsurance, covering over 50 million individuals.

To stimulate growth, government regulation, which simultaneously encourages innovation and growth while protecting customers, is necessary. In India, for example, all insurers are mandated to provide insurance to the rural sectors. As a result, “there has been a surge in product innovation and experimentation with new distribution channels” (p.18). The paper argues that this approach should be combined with educational workshops to promote learning and collaboration between insurers, distribution channels and regulators.

The report states that while “government and donor-sponsored schemes will remain essential for initiating market developments… mainstreaming microinsurance, beyond sponsored pilot [programs] will have to be market-driven” (p.33). Profitability, it argues, is necessary for the industry to attract enough investment to achieve sustainable growth and reach the potential billions of people not yet covered. The MicroInsurance Centre has not deemed this as a considerable dilemma, estimating that “over the next 10 years the microinsurance market could grow to one billion policyholders” (p.24).

By: Stefanie Rubin, Research Assistant

About Lloyd’s:

Lloyd’s is a British insurance and reinsurance market. It is not an insurance company, but rather a society of financial backers, underwriters and corporations, which come together to pool and spread risk. Lloyd’s operates in over 200 countries and covering 52 of the world’s top banks. By year-end 2008, Lloyd’s had over GBP 2 billion (USD 3.29 billion) in total assets.

Lloyd’s 360 Risk Insight analyzes and reports on emerging risk, including climate change, terrorism, energy security and liability.

About the MicroInsurance Centre:

Founded in 2000 as an initiative of MicroSave, the Wisconsin-based MicroInsurance Centre promotes microinsurance by producing case studies and providing consulting services in product development, research and advocacy. MicroSave is a capacity-building organization, providing technical and financial services to financial service providers.

Additional Resources:

Lloyd’s 360 Risk Insight: “Insurance in Developing Countries: Exploring Opportunities in Microinsurance” http://www.lloyds.com/NR/rdonlyres/5CFE7CAF-0075-415C-B0F2-BEBF0323059E/0/Microinsurancereport_Nov2009.pdf

Lloyd’s Key Facts: http://www.lloyds.com/NR/rdonlyres/2F78FA8F-0C3B-49AB-87A0-4809F84A9BB4/0/FactSheet_09_Final2.pdf

MicroInsurance Centre: http://www.microinsurancecentre.org/

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