Microinsurance could bring in US$ 40 b for insurers

The global microinsurance market could generate premiums of up to US$40 billion, with the Asia Pacific region seen as the fastest growing and the largest segment of the market, says Swiss Re’s latest sigma study ‘Microinsurance – risk protection for four billion people’.

Microinsurance has also grown considerably in African and Latin American countries despite these being relatively smaller microinsurance markets at present.

The report says that microinsurance has the potential to cover up to four billion people of whom an estimated 2.6 billion live on US$1.25 to US$4 a day and represent the “commercially viable” segment of the market. Another 1.4 billion even poorer individuals need support such as government subsidies to pay the premiums.

Amit Kalra, head of economic research and consulting at Swiss Re in Bangalore and author of the report, notes that currently the risks covered by microinsurance are heavily tilted towards credit life insurance. The market could expand to cover areas such as health and agricultural insurance.

The pool of four billion people translates into two billion to three billion policies globally from life, health, credit to agriculture and catastrophe insurance products. Only less than 3% of the market is now being penetrated, the report adds.

As the microinsurance industry expands, organisations must increasingly cope with rising risk exposure and risk accumulation. This will lead to additional needs for capital and reinsurance solutions that leverage both traditional products and tailor-made innovative solutions. The latter includes, for example, weather derivatives and parametric nat cat solutions.

However, some challenges that microinsurance faces are: insufficient infrastructure, the absence of specific regulatory provisions, and the lack of exposure and risk data. Insurers must also find suitable partners for distribution and claims management. Products must be adapted to client needs as well as the cultural background of the prospective microinsurance buyers.

Governments can help by improving access to financial services for the low-income population; developing a sound regulatory framework; lowering barriers and developing efficient markets; subsidising premiums; increasing awareness and ensuring consumer protection.