Mapping the Landscape of Microinsurance
Katharine Pulvermacher reflects on a decade of Landscape Studies – and suggests how we can improve data collection to drive better insurance services. By courtesy of the Micro Insurance Network.
The Microinsurance Network (MiN) has been tracking the evolution of microinsurance since 2007, starting with the publication of The Landscape of Microinsurance in the World’s 100 Poorest Countries.  Back then, the project team identified 7.8 million people who were covered by microinsurance in Latin America and the Caribbean (LAC). According to the latest report, coverage in the same set of countries stood at 17.6 million individuals by the end of 2016 – an increase of 126%. Argentina, Brazil, Chile and Mexico, which were not part of the original 2007 study, together add another 34.1 million people.
Progress is indisputable but inclusive insurance remains a low priority
Clearly, there has been a significant increase in the number of low-income people in the LAC region with insurance cover of some kind. The variety of insurance products and services has also increased and now extends well beyond mandatory credit-life insurance. Uptake of life and non-agricultural property insurance has grown fastest since the last LAC Landscape Study in 2013. Encouraging though this is, however, the low-income market remains a low priority for insurers in the region. They cite lack of demand, inadequate distribution channels and insufficient market data to inform product design as key reasons for their lack of enthusiasm.
Insurance services targeting low-income consumers still represent a tiny fraction of national insurance markets in the LAC region when measured by premiums. For example, Figure 1 (overleaf) shows that in 12 out of 17 countries for which data was available, microinsurance premiums represented less than 1% of the total, and in a further three countries it was only slightly more than 1%. Guatemala and Ecuador were the only countries with a significantly higher percentage, at 4.1% and 5.3% respectively.
Scale is essential for a sustainable business case
Microinsurance walks a tightrope to maintain a balance between affordable insurance products that are accessible for value-conscious, cashconstrained target customers, yet that can still break even in the face of high transaction costs per dollar of premiums collected. Narrow margins make scale essential, and as a result the barriers to entry may prove high, especially where successful implementation requires significant investment in back-office technology for efficient premium collection and claims processing. Successful implementation is a long game, and even patient investors must prioritise their capital. Impact investors, including public sector investment funds, remain critical to ensuring that microinsurance programmes get the necessary time to reach maturity and become self-sustaining.
Market prioritisation is therefore key. The poorest countries are not necessarily the largest markets for microinsurance, or the most promising. Firstly, per capita Gross Domestic Product (GDP) cannot tell us how many individuals or households are potential microinsurance customers. Over the years, both project teams working on the Landscape Studies and commercial players seeking to come up with a measure for target market size, have concluded that consumers spending between US$2 and US$10 a day, in terms of purchasing power parity, are likely microinsurance customers. This excludes the very poor and clarifies the focus of microinsurance: to ensure that people emerging from poverty are able to develop resilience in the face of risk, so that when bad things happen, they do not simply fall back into deep poverty.
The environment may matter more than size
Microinsurance regulations do not make markets, but enabling environments do. Peru and Colombia serve to demonstrate this point, since both countries have relatively successful microinsurance markets, with double-digit coverage ratios. Specific microinsurance regulations were introduced in Peru from 2007 and have undergone successive reviews since then to improve financial inclusion. In Colombia there is no specific microinsurance regulation, but there is explicit government support for financial inclusion. An extensive case study of Colombia published in 2008 found that “the current insurance regulatory framework generally does not hamper microinsurance”. However, it was specific players in the private sector, attracted by significant potential for profit from low-income segments, who were driving the market forward using innovative distribution channels such as utility companies to reach customers.
From a late 2018 perspective, as the term ‘microinsurance’ moves out of vogue, it is clear that the naming of regulation is less important than what it does. Discussions at a series of Consultative Forums organised by the MiN in partnership with the Access to Insurance Initiative (A2ii) and the International Association of Insurance Supervisors (IAIS) strongly suggest that an enabling environment does not result from just one set of sectoral regulations. Policy coordination between sectors is increasingly important to facilitate innovative partnerships and emerging technology solutions that contribute to better customer service and economic viability. There is no ‘one size fits all’ – each country has its own policy legacy and specific political economy. However, policy makers’ concerns that consumers should be protected and served with value-added products and services is common across the whole sector.
Markets are made by motivated champions
The significance of motivated champions is underlined by early movers such as Peru and Colombia, where the critical mass needed to kickstart the market was achieved by just one organisation offering a single, simple product. In Peru this was a single entity offering mandatory credit life insurance, while in Colombia, a single provider sold funeral insurance. Similar examples can be found in other markets and regions.
If data isn’t measured, does it exist?
It is costly and sometimes nearly impossible to obtain robust representative data on the number of lives covered by microinsurance and the related gross written premiums. Aside from the issue of trust, and in the absence of a legal requirement, insurance providers have little incentive to share such information other than an interest in supporting an industry-wide benchmark. When it comes to data to provide better insights into the quality of products – such as claims ratios, time to settle claims and other key performance indicators – there is even less incentive to share, and the systems to collect it may not exist internally. This is by no means a specifically Latin American problem.
The goal of the Landscape Studies and World Map of Microinsurance is not simply to provide a snapshot of how much insurance is out there. The raison d’être of the programme is driving better quality services. To that end the 2018 Landscape Study, which focuses on the Africa region, will trial a new methodology to be implemented globally from 2019. Partnership is inherent in the new approach, which seeks to work with insurers to identify which data is needed, which data is missing and to develop solutions for filling the gaps.