microinsurance and the insurance industry brandon mathews washington dc 5 february 2013...
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Microinsurance and the insurance industryBrandon Mathews
Washington DC5 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.
0 10 20 30 40 50 60 70 80 90 100
30% Middle Class
37.5%Vulnerable
30.5%Poor
Est. probability of entering poverty during next 5 years
Source:s World Bank ‘Economic Mobility and the Latin American Middle Class’ & Stonestep estimates.
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.
Insurance Risk Operational Risk
New partners
Existing partnersNew Customers
Existing Customers
Operational risk is especially interesting to consider.
93/1/200
9
Mostcustomers
Wealthycustomers
Microcustomers
Claims
DirectCapitalComms
103/1/200
9
Immediate Mid term Over time
Higher ERLower LR
Acceptable CR
Lower ERHigher LR
Attractive CRthrough innovation
Lower RateSame ERSame LR
Acceptable CRand increasemarket share
Same RateSame ERHigher LR
Acceptable CRand increasepenetration
Innovate over time to gain profit and then to improve market position.
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
Externalities
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