Microinsurance and the
insurance industry
Brandon Mathews
Washington DC
5 February 2013
Interamerican Development Bank
Rise of the middle class in LatAm
Source: World Bank
‘Economic Mobility and
the Latin American
Middle Class’
Despite tremendous gains, Latin
American households risk poverty.
30%
Middle Class
37.5%
Vulnerable
30.5%
Poor
Source:s World
Bank ‘Economic
Mobility and the
Latin American
Middle Class’ &
Stonestep
estimates.
0 10 20 30 40 50 60 70 80 90 100
Est. probability of entering poverty during next 5 years
Lower income households carry high
debt and low savings, esp in Brazil.
• Insurance penetration is low.
• Higher frequency, lower severity events – along
with low frequency, high severity events –
threaten lower income households.
• Insurance product and service requirements are
different for these households but lessons about
what sells do exist.
Products sold to low-income people
are a large part of Brazil’s market.
Source: FUNENSEG, CENFRI, CNSEG, “Microinsurance in Brazil, Toward a strategy
for Market Development”
There’s room for innovation with the
most common products.
Source:
FUNENSEG,
CENFRI, CNSEG,
“Microinsurance in
Brazil, Toward a
strategy for Market
Development”
Profitable products and proven
methods, why not more micro?
• Multidimensional challenge for insurers
• Insurance best practice makes action difficult
• Discomfort with foggy definitions
• Reputation risk/reward
Challenge in three dimensions, not
just one.
New partners
Existing partners
New Customers
Existing Customers
Insurance Risk
Operational Risk
Operational risk is especially
interesting to consider.
Micro
customers
Most
customers
Wealthy
customers
Claims
Direct
Capital
Comms
3/1/200
9
9
Innovate over time to gain profit and
then to improve market position.
Immediate
Mid term
Over time
Higher ER
Lower LR
Lower ER
Higher LR
Lower Rate
Same ER
Same LR
Acceptable CR
Attractive CR
through
innovation
Acceptable CR
and increase
market share
3/1/200
9
Same Rate
Same ER
Higher LR
Acceptable CR
and increase
penetration
10
Profitable products and proven
methods, why not more micro?
• Multidimensional challenge for insurers
• Insurance best practices make action difficult
• Discomfort with foggy definitions
• Reputation risk/reward
Current customers are best served by
insurance best practice.
• Whereas “microinsurance” takes a customer
view, insurance is managed by peril.
▫ Insurance is supervised and also controlled
internally by peril.
• Comparative advantage encourages companies
to organize by functional area – marketing,
underwriting, sales, operations, etc – and it is
rare to organize by customer.
▫ Increasingly insurers organize by distribution
focus and Affinity is good news for growth of
insurance sales. TBD on customer value.
Profitable products and proven
methods, why not more micro?
• Multidimensional challenge for insurers
• Insurance best practices make action difficult
• Discomfort with foggy definitions
• Reputation risk/reward
The microinsurance definition is very
open to interpretation.
• Insurance for low income people.
▫ Insurance can include Life, Health, P&C, Pension,
as well as the social security systems of countries
▫ Low-income – is this the middle, vulnerable, poor,
or is it all three?
• Insurance with some kind of moral imperative.
▫ How can we measure this?
▫ Does this mean the other insurance is bad?
▫ Microinsurance discussions can feel like an ethics
lesson for insurance executives.
Profitable products and proven
methods, why not more micro?
• Multidimensional challenge for insurers
• Insurance best practices make action difficult
• Discomfort with foggy definitions
• Reputation risk/reward
“Microinsurance” is understood
differently from various perspectives.
• Microinsurance and Financial Inclusion spark
interest from important stakeholders
▫
▫
▫
▫
Regulators & Supervisors
Own-company employees
Media
Existing customers & investors
• The innovation requirement predicts some
number of failures...
Good news from the free market:
specialist entrepreneurs are filling in.
• Administrator/brokers: Microensure & Paralife
• Private Equity Investors: Leapfrog & others
• Venture project development: Stonestep &
Planet Finance
Good news from the free market (2):
big industry is also stepping up.
• Marsh-led Microinsurance Innovation Facility
• Swiss Re & Allianz Microinsurance units
• Zurich Insurance appointment of Cassio dos
Santos as Regional Chair
• Compartamos and others defining new
strategies
Thank you