New Swiss Re sigma study highlights the significance and potential of microinsurance in supporting socio-economic development in emerging markets
December 15, 2010:
Swiss Re’s latest sigma study “Microinsurance - risk protection for 4 billion people” emphasises the relevance of microinsurance as an effective and viable risk management solution for low-income individuals. Microinsurance, which has the potential to cover up to 4 billion people, concentrates on few risks today, but its scope is broadening. The interest of insurers in microinsurance lies very much in its future potential.
Microinsurance refers to insurance products especially designed for low-income individuals. The premiums and coverage are kept at a low level in order to make the products affordable and attractive to those policy holders, yet remain commercially sustainable. Currently, the risks covered by microinsurance are heavily tilted towards credit life insurance, but the market could expand to cover areas such as health, agricultural insurance, term life insurance, affordable pension products and other savings products.
Microinsurance supports socio-economic development and insurance growth in emerging markets
By reaching many individuals who were formerly excluded from insurance, and thereby reducing the vulnerability of low-income individuals and protecting their income streams, microinsurance helps to improve social stability and supports broad-based economic development.
Amit Kalra, author of the new sigma study stated: “For insurers, microinsurance creates an opportunity to tap into new markets and build a strong brand value that can be used for selling conventional insurance products in the future.” Kalra added: ”It is a win-win situation: Insurers help those who urgently need access to insurance. This in turn supports the long-term economic goals of insurers.”
Huge untapped market potential at the bottom of the pyramid
The microinsurance market could generate premiums of up to USD 40 billion. Over the last decade, insurers, NGOs, mutuals and community organisations have launched microinsurance programmes across product lines and major markets. The key drivers supporting this activity's growth have been increasing microfinance penetration (in particular microcredit), the active involvement of government in certain markets and need-based product offerings.
Kalra said: ”The Asia-Pacific region is the fastest growing and the largest microinsurance market. Microinsurance has also grown considerably in African and Latin American countries despite these being relatively smaller microinsurance markets at present.”
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.
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