4th International Microinsurance Conference, 5–7 November 2008, Cartagena, Colombia
An instrument with enormous potential
Microinsurance offers poor households in developing and emerging countries protection against natural hazards. The extent to which this issue has grown in importance was apparent from the great interest received by the 4th International Microinsurance Conference, which took place in late 2008 in Colombia. This event was jointly hosted by the CGAP [Consultative Group to Assist the Poor] Working Group on Microinsurance and the Munich Re Foundation, supported by Fasecolda, FIDES and the Superintendencia Financiera de Colombia.
Some 450 experts and practitioners from around 50 countries travelled to Cartagena for the first international conference of this kind in Latin America. Compared with last year’s event, there was a 50% increase in registrations from participants looking to discuss the latest trends and developments, and formulate appropriate solutions. The conference focused on the topics of regulation, training, technical solutions and innovative sales channels. Representatives of insurance companies and financial services providers were the largest contingent, accounting for around two thirds of the participants – evidence that microinsurance has long since ceased to be seen only as a weapon in the war on poverty and is instead now increasingly also viewed from an economic perspective by the insurance industry. The potential target group is enormous: in Central and South America alone, 350 million people live at the bottom of the income pyramid.
In his opening speech, Colombia’s President, Álvaro Uribe, expressed his hope that microinsurance will continue to grow in popularity. “We need to introduce the concept to the poorest members of society and emphasise that it is the best option for personal risk management – whether for health problems, times of financial hardship or natural catastrophes”, explained Uribe. Instead of going to moneylenders or black-market racketeers, people should use insurance products, he said. Uribe stressed that microinsurance is not charity. “Microinsurance is heartfelt, but it is about business, not handouts.” Even people with low incomes are happy to take up commercial offers, he continued.
Colombia is considered to be one of the most important markets for microinsurance in Latin America. The first microinsurance products were devised here over five years ago. Today, 11 companies offer covers in classes including life, personal accident, and funeral expenses. Property policies are currently in development as a response to rising demand. Experts attribute the success of microinsurance in Colombia to the close cooperation between insurers and the authorities.
The influence of regulation on the spread of microinsurance has been investigated by the Microinsurance Network (formerly the CGAP Working Group on Microinsurance) based on studies in Uganda, Colombia, India, the Philippines and South Africa. These studies showed that the target group for microinsurance stems chiefly from the informal sector, which is often not regulated: it accounts for 20% in India; in Colombia, this figure even exceeds 50%. This difficulty is compounded by the fact that this part of the populace lacks the necessary education and the understanding of how insurance works.
Official strategies to tackle these problems range from moderate regulation, founded on cooperation between insurers, the government and the microfinance industry (Colombia), to actually forcing the private sector to offer microinsurance (India). Roberto Junguito, President of the Colombian insurance association, Fasecolda, spoke out in favour of the Colombian model and emphasised that no new rules were necessary. “Even without intervention, the private sector is vigorously working on the development of custom-tailored, affordable solutions to satisfy the increasing demand”, he explained. That alone would guarantee further growth in this area, he concluded.
Other experts joined Junguito at the conference in calling for incentivising rather than forcing the spread of microinsurance. In this connection, it is important to turn informal insurance into more formalised (traditional) forms of insurance and support, for example, cooperative solutions in order to protect the rights of the weakest, in particular.
However, even if the parameters and products are in place, the barrier still remains that people do not understand the workings and benefits of insurance. Thus, in a survey of 550 households in Colombia, lacking interest and understanding were amongst the most prominent reasons for not taking out insurance. The most commonly given reason, “lack of money”, is relativised, however, when one considers that people in Colombia’s lowest-income regions spend about as much on insurance as on lotteries. Seen over 30 years, however, the mortality risk is 50 times higher than the chance of winning the lottery. This example shows how important it is to explain the significance of insurance.
Craig Churchill from the International Labour Organisation (ILO), and Chair of the Microinsurance Network, which co-organised the conference, emphasised: “Microinsurance is just one of many tools for supporting the poor. We have achieved a great deal. Now it is time for commercial insurers to go beyond simple products such as credit insurance, develop more specialised solutions and bring these to the market.”
The high fixed costs in comparison to premiums are still one of the major hurdles to be overcome. An example of how innovative distribution channels can contribute both to tapping into new client groups and to reducing costs is shown by the insurer Mapfre, which is cooperating with the electricity provider Condensa in Colombia. As a result of this alliance, more than 300,000 families pay their insurance premiums via their electricity bills, with 90% of these families being in the lowest income groups.
The potential for efficiency enhancement offered by IT solutions has yet to be exhausted, but introducing such systems involves considerable effort and expense. About half of all the microinsurance providers surveyed in a study by the Microinsurance Network develop their software completely independently. Only 10% sourced programs from third-party providers. What is more, the possibilities afforded by technical solutions such as smart cards have been far from exploited to the full. That said, the use of new technologies requires careful consideration, as decisions taken in this area have long-term effects and internal processes must be optimised in order to leverage the full potential.
The conference in Cartagena showed that in Latin America in particular, the commitment of the insurance industry to microinsurance is growing. Nevertheless, many challenges remain, with costs and the tailoring of products to needs being central issues. The data available is also insufficient to be able to quantify the added value of the respective insurance solutions for the poor.
These problems will be addressed not only by the Microinsurance Network but also by the next International Microinsurance Conference, which is to be held on 3–5 November 2009 in Dakar, Senegal. The organisers hope that the spirit of Cartagena will also be present in Dakar, so that microinsurance, which has been somewhat sidelined in Africa thus far, can achieve its breakthrough there too.