Microinsurance has been gaining recognition as a key component of financial inclusion, offering valuable risk management tools for low-income people as well as a potential means for insurers to reach new markets. However, until recently, relatively little was known about the sector as a whole, and there was a general lack of data to aid industry actors in decision-making.
Two recent landscape studies conducted by the MicroInsurance Centre in Africa* and in Latin America and the Caribbean (LAC)** build on two previous landscape studies*** and provide much needed dynamic industry-wide data to assist a variety of stakeholders – including insurers, distribution channels, policy-makers, donors and consultants – to understand the microinsurance markets more effectively, leading to better development and expansion of microinsurance.
The data from the studies covers 71 countries on two continents and provides information on 610 providers. From this data we can begin to provide answers to important questions such as: What are trends in the industry over time? Where is microinsurance growing and why? What are the gaps in access to microinsurance? Where are the opportunities for expansion? What factors might be hindering the development of microinsurance?
The concurrent landscape studies for Africa and LAC allow for comparisons that were not possible before. Some interesting findings from the studies include:
- Coverage volumes: The African study identified 4.4% of Africans covered by microinsurance, but this coverage is highly concentrated. When South Africa – with its booming funeral insurance industry – is removed, the coverage ratio drops to just 1.7%, and 650 million Africans live in countries where microinsurance is absent or the coverage ratio is below 1%. In contrast, the 7.6% coverage ratio in LAC is more representative of the region as a whole: when the two largest markets by number of insured (Brazil and Mexico) are excluded, the coverage ratio actually increases to 7.8%. However, the market in LAC is primarily covered by relatively low-value life and personal accident products geared toward mass markets, leaving much room for the development of a broader array of higher-value products. Indeed, there are still at least 80 million people in LAC living in countries with no microinsurance or with coverage ratios of less than 1%, and many millions more live in countries with low coverage. In both regions, growth needs to come through more people insured, but also through a broader range of products.
- Risks covered: As expected, we see that life products clearly dominate in both regions, and accident products have made some strong gains in LAC. In general we find a lack of higher-value – but more complex – products such as health and agriculture. Of the 10.3 million people covered for some health risk in LAC, 9.8 million are through secondary covers (typically supplementing a primary insurance policy), leaving very few dedicated health products. In Africa, just 2.4 million people were identified as being covered by health products, mainly through community-based schemes with small outreach in Francophone Africa. The lack of available health microinsurance products may be due to the prevalence of universal healthcare in some study countries, as the study did not include government-run schemes.
- Providers: Regulated commercial insurers are the key to increased outreach in both regions. In Africa, 77% of providers are community-based organizations, but they only cover about 12% of the total identified lives and properties covered. In contrast, commercial providers account for just 13% of the organizations taking on microinsurance risk but 78% of lives and properties covered in the region. In LAC, 90% of microinsurance providers are regulated commercial insurers, although many of these are relatively small in size. Nonetheless, it remains that massive microinsurance growth requires the commercial insurance industry.
- Distribution channels: Both regions exhibit a wide and growing variety of distribution channels, with 18 different channels identified in LAC and 15 in Africa. New distribution channels, such as mobile network operators, utilities and retailers, and even specialized brokers, hold the potential to dramatically increase coverage, but some may raise questions regarding consumer protection, regulations, and market education. For example, in LAC we see several countries that have distribution channels that charge very high fees. Such channels hold the potential to reach millions but may be reducing client value in the process. The expansion of distribution channels shows an active and aggressive effort in some countries to test new means of providing access to the masses. In LAC, unlike in Africa, microinsurance is becoming difficult to clearly identify as insurers focus more and more on the “mass market,” simply trying to fill a wider range of the traditionally un-served market.
The data from these new studies are available in an interactive map on the MicroInsurance Centre website (check out the instructional videos to use the map most effectively) and through www.microinsurancelandscape.org. The full studies will be available soon.
*The Africa Landscape study was funded by a consortium led by the Munich Re Foundation and Making Finance Work for Africa.
**The Latin America and Caribbean study was funded by the IDB/MIF with Citi Foundation and the Munich Re Foundation.
***Matul, Michal, Michael J. McCord, Caroline Phily, and Job Harms. (2010). The Landscape of Microinsurance in Africa. Geneva: ILO; and Roth, Jim, Michael J. McCord, and Dominic Liber. (2007). The Landscape of Microinsurance in the World's 100 Poorest Countries. Appleton, WI: MicroInsurance Centre.
------ Michael J. McCord is the Founder and President of the MicroInsurance Centre. Dirk Reinhard is Vice Chairman of the Munich Re Foundation. Both authors are members of the Board of Directors of the Microinsurance Network.