An article by Mr. Sunanda Creagh in the Khaleej Times has highlighted important tensions in the microinsurance sector. As noted by senior World Bank insurance specialist, Mr. Craig Thorburn, interest in microinsurance has grown dramatically in recent years. As reported in a previous Microcapital Story, the LeapFrog Financial Inclusion Fund recently raised USD 44 million for what was billed as the world’s first microinsurance fund. Commercial firms have recognized the profit potential of the microinsurance industry. The article observed that the Ugandan arm of global insurance provider AIG earns about 17 percent of its profits through microinsurance premiums from clients in Uganda.
The impact of microinsurance schemes for the poor is unclear. Results are mixed and opinions of those familiar with microinsurance vary. Ms. Rupalee Ruchismita, founder of the Centre for Insurance and Risk Management in India, which works with insurers and MFIs to develop livestock, health, weather, and catastrophe insurance plans, observed that in practice only a third of insurance firms in India offer microinsurance products. Most insurance firms do so in order to meet targets or to appease the regulators. These firms often argue that it is very difficult to reach the intended audience. Ms. Ruchismita added that microinsurance schemes tend to be more successful when a community-based organization works in partnership with a private insurer, as both have strengths in different areas.
For insurers, the sheer number of potential customers in the low-income bracket makes this an attractive market. Mr. Kua Ka Him, the Chief Executive for German-headquartered insurance firm Munich Re in Singapore and Southeast Asia, was quoted in the article as saying that although almost 80 percent of the world’s population live in emerging markets, they account for only 22 percent of global GDP and 9 percent of global insurance premiums. Mr. Kua added that Munich Re is looking at microinsurance products in Asia covering earthquakes, typhoons and even loss of income for businesses forced to close because of a flu, or H1N1, pandemic. A summary of Munich Re’s microinsurance programme is available on their website.
The article in the Khaleej Times notes that Munich Re has begun a trial of what has been billed as the world’s first flood microinsurance policy in flood-prone central Jakarta. Residents in the Manggarai district pay Indonesian rupiah 50,000 (approximately USD 5) for a flood “cash card” that can be cashed in for Indonesian rupiah 250,000 (approximately USD 24) if floodwater levels rise to or above 9.5 metres at the Manggarai Water Gate, which is 2 metres above normal levels. It has been said that only 50 policies have been sold so far, partly because the insurance only covers the very worst floods, not the recurrent knee-high flooding that can still ruin homes and possessions. Francis Purwanta, a spokesman for Munich Re’s local partner in Indonesia, Asuransi Wahana Tata, noted that the pay-out under the trial policy is too small. He also noted that flooding is expected to occur at least three times in five years.
Mr. Purwanta added that the idea of making a profit from the very poorest members of society is also controversial. Yet supporters say it is necessary if insurance companies are to back such policies. The potential for profit is the only way to involve commercial insurers in the market. Non-profit organizations that work alone rarely have the technical know-how to assess the risks and design an effective insurance programme for poor households. He also said that it would help commercial insurance firms if the delivery of microinsurance products is undertaken by organizations that potential microinsurance clients trust and are familiar with.
Mr. Wardah Hafidz, who works at the Indonesian non-governmental organization Urban Poor Consortium, suggests that governments are evading their responsibilities by expecting poor people to take out private insurance policies. Mr. Hafidz’s view is that the government should be providing protection from such disasters to the people instead of encouraging private businesses to target poor clients.
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