Microinsurance is growing rapidly in Latin America and the Caribbean (LAC). The “Landscape of Microinsurance in LAC” study presented during the event found that 45.5 million people have microinsurance, 70% which is life insurance (2). In 11 countries in the region, microinsurance grew by 125% between 2005 and 2011.
Close to 90% of this growth is in Colombia, Ecuador, and Peru. But there are some setbacks. Some markets in LAC have stagnated or shrunk due to regulatory constraints, most notably Panama, with a total growth of only 3%, and Venezuela, with a decrease of 97%.
By numbers, commercial insurers are the most common type of microinsurance providers in LAC. They cover the vast majority of all lives and insured property. Cooperatives and mutuals rank second. A handful of NGOs, community-based organisations, and government companies also reported offering microinsurance. There is a very wide range of distribution channels used in LAC. Microfinance institutions remain the most important of these for delivering microinsurance to the end client. Additional distribution channels are brokers, retailers, and regular insurers.
Despite the region’s relatively high coverage ratio of 7.6%, which is almost twice that of Africa, there is much room for improvement. This study has identified some key areas for future efforts to develop the microinsurance market in LAC.
Enabling environment and client value
“We need to look at an enabling environment and a regulation that has enough flexibility to meet the needs of the poor,” Michael McCord, President of the Microinsurance Centre and author of the study stated. Regulation has not always driven microinsurance. The International Association of Insurance Supervisors has developed guidelines for the development of microinsurance regulation and regulators in Latin America should use these to develop their own regulatory frameworks.
In addition to developing products that actually provide value for the clients, distribution still is one of the main barriers. Discussants agreed that distribution channels need technical support and training for selling the products. Furthermore, there are still knowledge gaps in how to build up and manage microinsurance. Finding the right institutional structure that meets the needs of this new market is key.
According to the study, very high commission levels are being required in many cases to attract the large distribution channels. Efforts to really understand the level of costs could help to rationalise the commission requirements, bring down premium rates and offer greater value to clients. The use of new technologies including mobile phones will help to reduce costs substantially.
But pricing is only one side of the “client value” medal. Fast claims payment is especially important for the low-income market. Speakers agreed that there is no better financial education than to show that insurers are actually paying.
“The industry is ready to support market development,” according to Recaredo Arias, President of the Mexican Insurance association and former Secretary General of the Latin American Insurance Association FIDES, who opened the conference together with Dirk Reinhard, Vice Chairman of the Munich Re Foundation. Building up microinsurance support by insurance associations in the region is an important part of the ongoing activities to accelerate market development. FIDES has started a project with five member organisations and eight insurance companies in Brazil, Colombia, Guatemala, Mexico and Peru looking into the development of better products. The insurance associations in the countries have started various projects to improve insurance knowledge and financial education. “Educating children is one basis for developing financial knowledge in adults. But providing the right incentives to buy and sell insurance as well as trust remains key,” Arias concluded.
“There are many lessons to be learnt in the region” was one of the findings of the landscape study. Participants of the event asked for effective knowledge-sharing at the country level as well as among countries with different levels of microinsurance market development. They want to learn more about good as well as bad experiences and how to avoid mistakes. “We have learnt a lot but also saw that there are many issues to tackle. I therefore hope that the LAC Learning Session will become an integral part of the FOROMIC,” Dirk Reinhard concluded.