Microinsurance: Disrupt, Fail, Repeat?

Microinsurance, a darling of the charitable-industrial complex, has run into tough times of late. After more than ten years of high-octane activity, and despite an influx of donor dollars and the stated dedication of insurance titans to work at the bottom of the pyramid (BOP), very few initiatives have been able to achieve scale, sustainably, or impact.  Without one of these elements it is very difficult for any emerging-market industry to endure, and yet the majority of microinsurance initiatives lack more than one of these characteristics.    

There are success stories, to be sure – and the robust conference agenda maintained in the global industry indicates a durability of interest (or at least of training allowances for junior insurers). In my own city, Nairobi, there are no fewer than six microinsurance conferences slated for 2015 alone.

The conferences, however, tend to gravitate around the same innovators, describing the same successes – so much so that fellow panellists sometimes joke that they could give each others’ presentations. In the Philippines, for example, it is well-known that the insurance industry has taken on the microinsurance challenge full-bore, with many insurers actively competing for distribution channels and offering benefit-rich products that appeal to Filipino consumers. Ghana, meanwhile, boasts at least three dedicated microinsurance firms in addition to a National Health Insurance Scheme, which have together made the country one of the most-penetrated insurance markets in sub-Saharan Africa. Finally, mobile insurance, according to GSMA and industry sources, has in just the past few years extended insurance for the first time to more than 25 million mass-market consumers in Africa and southeast Asia.

Beyond these and a limited number of other model initiatives, though, many of the most-trumpeted initiatives in the microinsurance industry have failed to survive the past decade. Crop insurance, desperately needed in markets where more than 60% of the labor force works in agriculture, doggedly refuses to scale as farmers balk at its high price. And crop insurance, of course, comes with significant risk: one the over-eager Filipino market and its global reinsurers learned far too well after the destructive Typhoon Haiyan in 2013.

Man pushes food truck in the Philippines. Photo by Remus Nicolas Doroon, 2014 CGAP Photo Contest.
Man pushes food truck in the Philippines. Photo by Remus Nicolas Doroon, 2014 CGAP Photo Contest.

Similarly, mobile distribution has failed thus far to be a panacea for the industry. Kenyan telecom giant Safaricom projected in November 2012 that 1 million of its customers would be insured through its low-cost, innovative Linda Jamii product, and yet 18 months later only 36,000 customers had registered for the service, with uncertain numbers of customers having actually paid premiums. Other mobile insurance products have also suffered from the volatility inherent in the emerging-market telecom space, leading insurance penetration in individual markets to vary by millions from month to month and insurers to question the wisdom of mobile-dependent distribution.

As the challenges have cascaded, industry actors have started to avoid the very term “microinsurance,” preferring recently to speak of “mass market” or “impact” insurance. The ILO, a champion of the industry, conceded in its 2014 annual report, “we recognize that insurance has much broader, as yet unfulfilled, development potential: we need to go beyond ‘micro’ to have the greatest impact.”

Operators, meanwhile, have responded in kind, looking to take “micro” to “macro.”  Crop insurance discussions today often focus on market-level intervention rather than per-farmer sales; the Linda Jamii product in Kenya has repositioned itself to target corporate buyers; and global microinsurance operators, unable to keep the lights on with pennies earned per customer, have begun distributing more expensive, mid-tier products. While it is unclear whether such efforts will generate value for those who can barely survive, it is clear that an industry with a full head of steam a decade ago is today - if it is honest - merely trying to do the same.

What the shift in the microinsurance industry will mean – and whether a unified industry will endure – remains uncertain, but there is much for a keen observer to watch. The fault lines currently appear to be breaking along the lines of the aforementioned “charitable-industrial complex.” The charitable wing, having tired of funding isolated private-sector projects and regulatory reforms with little to show for either, appears to be focusing its efforts on public-private partnerships with “macro” goals such as universal health care.  private sector, meanwhile, has invested in initiatives such as the Microinsurance Venture Incubator, a consortium launched by nine global insurers in January after it became clear that the microinsurance initiatives of individual insurers were falling short. 

As microinsurance crosses its first decade, with challenges far outweighing successes, the industry’s soul-searching holds implications for other emerging industries serving the BOP. If the industry remains unified, it is unclear if the unity will result from donor dollars or industry collaboration.  If the industry fragments, it remains unclear whether the microinsurance experiment of the early 2000’s will have provided a spearhead for wider penetration of insurance in developing markets, if the number of market successes will remain limited, or if insurance will retreat once again into the preserve of the rich. 

Time – and conferences – will tell.


01 May 2015 Submitted by Brandon Mathews (not verified)

The “charitable-industrial complex” conference view of microinsurance doesn’t fully recognize the significant changes afoot. Swiss Re’s Sigma numbers for 2003 & 2013 tell an interesting story.

2003 was a year before Munich Re Foundation and Microinsurance Network kicked off their annual conference. 2013 is the latest where figures are available. Using constant dollars, developed markets grew life insurance premiums by 11% over the period whereas emerging markets grew by 125%: LatAm by nearly 300%, emerging Asia by 110%, and Africa by 70%. Not all of the growth is “microinsurance” but it’s also not all traditional products sold via traditional channels to traditional customers.

Either the “microinsurance industry" encompasses the broader change or else it is a specialty-area based on good intentions and double-bottom lines. An option between these can be that microinsurance is an R&D lab for the industry – as Swiss Re’s CEO Michele Lies reportedly called it, “the formula one for the insurance industry.” If this is the case, it’ll be good to see more industrial money (adding to the charitable efforts) seeking new results. Starting from the industry end hopefully will lead more quickly into the small but real investments required to build these businesses.

01 May 2015 Submitted by Tony Manero (not verified)

With all this "real experience", is microinsurance a dead end, needs donor subsidies, poor executed or still searching for the right recipe ?

02 May 2015 Submitted by Pranav (not verified)

Interesting blog. While it has been argued that projects that have scaled remain limited, we also need to look at examples where multiple stake holders have come together to ensure scale in an efficient manner. It is not just the private sector, but in countries like India, even the govt has pitched in making agriculture crop insurance programs cover over 25mn farmers. Additionally, there are clear examples of both the protective and productive aspects of insurance being displayed in various cases- insured farmers in Ghana investing more in farms and using "riskier" but more remunerative mechanisms or insured pastoralists in Kenya showing less tendency to resort to asset sale or reduce consumption in case of a drought.
Over the years, the term "micro" seems to be "over-intellectualized"...from a customers' perspective, they are buying insurance, and hopefully some peace of mind, when they try to cover their risks. For them, a $5 premium has as much value as $500 premium. The challenge now is to try and ensure that are more and more mechanisms available or created to enable access to the insurance products, without considering them as micro or macro, and for collaborations among various stakeholders to make this a reality. All the successes and "failures" thus far have been stepping stones from which much has been learned and are great inputs for the next "wave"
Best wishes to all in this process...and look forward to sharing and learning at the conferences!

06 May 2015 Submitted by Jody Delichte, ... (not verified)

THE REALISM PHASE. Thank you for providing a realistic perspective of where the market is at. Similar to other initiatives / innovations we have witnessed over the years, it appears that microinsurance has perhaps descended from the peak of the hype curve and is now ready to climb the slope of enlightenment, or realism, where it can hopefully achieve the scale, sustainability and impact you mention, based on the lessons that have been learned.

07 May 2015 Submitted by peter wrede (not verified)

the formula one metaphor is excellent! Remember that many insurance companies in developing countries are hardly geared towards retail insurance at all, focussing on commercial and industrial lines instead and serving population (rich or poor) very little - "microinsurance" is a gateway to retail insurance.
Another metaphor that guides me every day are mobile network operators. Not so long ago, cell phones were a status symbol for yuppies, and whoever suggested to invest in mobile telephony in Africa risked being laughed at. Today, operators make substantial profits in Africa and elsewhere through pre-paid airtime.These little scratch cards represent my role model for insurance 2.0: a high volume low margin business that is pretty profitable. And no one calls it micro-phone.

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