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Microinsurance and the insurance industry

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’.

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Microinsurance and the insurance industry

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  1. Microinsurance and the insurance industry Brandon Mathews Washington DC 5 February 2013 Interamerican Development Bank

  2. Rise of the middle class in LatAm Source: World Bank ‘Economic Mobility and the Latin American Middle Class’

  3. Despite tremendous gains, Latin American households risk poverty. 30% Middle Class 37.5% Vulnerable Source:s World Bank ‘Economic Mobility and the Latin American Middle Class’ & Stonestep estimates. 30.5% Poor 0 10 20 30 40 50 60 70 80 90 100 Est. probability of entering poverty during next 5 years

  4. 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.

  5. 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”

  6. There’s room for innovation with the most common products. Source: FUNENSEG, CENFRI, CNSEG, “Microinsurance in Brazil, Toward a strategy for Market Development”

  7. 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

  8. Challenge in three dimensions, not just one. New partners Existing partners New Customers Existing Customers Operational Risk Insurance Risk

  9. Operational risk is especially interesting to consider. Micro customers Most customers Wealthy customers Claims Direct Capital Comms 3/1/2009

  10. Innovate over time to gain profit and then to improve market position. Immediate Mid term Over time Lower Rate Same ER Same LR Acceptable CR and increase market share Same Rate Same ER Higher LR Acceptable CR and increase penetration Lower ER Higher LR Attractive CR through innovation Higher ER Lower LR Acceptable CR 3/1/2009

  11. 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

  12. 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.

  13. 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

  14. Externalities

  15. 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.

  16. 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

  17. “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...

  18. 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

  19. 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

  20. Thank you

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