THE LANDSCAPE OF MICROINSURANCE IN LAC: GAPS AND OPPORTUNITIES

MICROINSURANCE FORITOXVI INTER-AMERICAN FORUM ON MICROENTERPRISE – FOROMIC 2013

MICHAEL J. MCCORDMICROINSURANCE CENTRE

29 SEPTEMBER, 2013

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C7.6% of the region’s population is covered by microinsurance

However, this is primarily by low-value life and personal accident products

Need to expand beyond basic products and increase volume of people covered

7.8% without Brazil and Mexico

2.6% without top five (JM, PE, EC, CO, MX)

No. Insured, MM Coverage ratio

Market could be over 300 million covered with premiums of over USD 6 billion.

What gaps in microinsurance development do we see?What opportunities are there for addressing them?

2 questions:

Start by identifying various market types…

Country allocation by market typology

Criteria: macroeconomic, commercial, development, other market issues

Characteristics• MI just starting/about to start• Few insurers, maybe one basic product• Often small population

Gaps•Know-how•Product development•Actuarial analysis•Voluntary sales•Regulatory support•Working with non-MFI channels •IT, especially back office•Consumer protection

Recommendations

• Regulation:• Proportional

supervision

• Distribution• Enhance capacity

• Meso level:• Technical assistance

capacity building• Sharing lessons

• Micro level / private goods:• Paradigm shift facilitation• Institutional structuring

for MI

The Case of Costa Rica

• Characteristics:• Insurance was state-

controlled monopoly until 2008• First private insurers began

sales in 2010• No MI identified yet

• Gaps:• Lack of distribution channels (MFIs

reach only 25,000)• Lack of insurer motivation or

capacity for microinsurance• Lack of client demand and

knowledge

• Regulation:• Learning from other

jurisdictions

• Distribution• MFI network is looking to

partner w/ an insurance broker; pilot in progress

• Need creativity in distribution, as MFI outreach is low

• Meso level:• Leverage REDCAMIF

regional network

• Micro level / private goods:• Niche markets:

microentrepreneurs and Nicaraguan immigrants

• Overcome the ‘brand’ of the state-run company

Recommendations/Opportunities – Costa

Rica

• Characteristics• MI market is driven by MFIs• Limited growth from other

distribution channels

Gaps•Voluntary sales•Back office and IT capacity•Brokers and intermediaries•Cost accounting and controls•Health covers•Ag covers•Claims assessment technologies•Consumer protection

Recommendations

• Regulation:• Assess structures in relation

to IAIS paper on inclusive insurance

• Proportional supervision• Consumer protection

strategies• Reduce/eliminate taxes

• Distribution• Coordinate with other

regulatory bodies regarding new distribution channels (e.g. mobile service providers)

• Enhance capacity of distributors

• Meso level:• Capacity building of insurance

associations and their institutes• Insurance training institutions• Actuaries and risk tables• Technical assistance capacity

building• Develop IT systems• Sharing lessons

• Micro level / private goods:• Help institutions understand

cost structures• Institutional structuring for

MI• Paradigm shift facilitation

• Characteristics:• Vibrant microfinance market• Regulatory requirements of

credit market help drive microinsurance

• Sophisticated market in terms of risks covered, accessibility, and simplicity

• Reasonable MFI commissions (12-18%)

• Client protection has evolved

• Gaps:• Distribution is concentrated in

MFIs, credit-linked products• Lack of affordability for more

complex products• Lack of client

knowledge/demand outside of MFI network

7.23% MI coverage ratio

The Case of - Bolivia

• Regulation:• Clarify distribution

requirements to facilitate alternative distribution• Consider incentives to

expand MI market

• Distribution• Identify and build capacity

of alternative distribution channels• Understand costing

• Meso level:• Market education• Insurance association to

take a larger role in MI advocacy

• Micro level:• Improve capacity of

insurers to respond to market needs

• Understand costing and risk to improve pricing

Recommendations -Bolivia

Characteristics• Robust middle class• Distinction between traditional insurance

and microinsurance is ambiguous• Reaches large numbers of people, but with

basic products, some with questionable value

Gaps• Consumer protection• Regulatory support• Regulatory requirements –

policy content• Linkages with mission-led

institutions• IT/Back office efficiencies• Cost accounting and

controls• Health and ag covers

• Regulation:• Assess structures in relation

to IAIS paper on inclusive insurance

• Proportional supervision• Consumer protection

strategies• Reduce/eliminate taxes

• Distribution• Clarify legal structures for

distribution• Coordinate with other regulatory

bodies regarding new distribution channels (e.g. mobile service providers)

• Enhance capacity of distributors

• Meso level:• Capacity building of insurance

associations and their institutes• Insurance training institutions• Actuaries and risk tables• Technical assistance capacity

building• Develop IT systems• Sharing lessons

• Micro level / private goods:• Help institutions understand

cost structures

Recommendations

• Characteristics:• “Popular” or “mass market”

insurance provided mainly by formal commercial insurers• Regulators recently developed

“8 Circulares” that address mi• Significant R&D initiatives

inform insurers

• Gaps:• Limited distribution to

poorest populations and rural areas• Little effort made to

track product value or social performance

5.36% mi coverage ratio

The Case of - Brazil

• Regulation:• Circular implementation• Careful consumer

protection

• Distribution• Improvement in coverage

through MFI/banking agencies

• Meso level:• Facilitation of technology to

improve efficiencies • Expansion to rural areas• Enhance linkages with

government programs and others that currently reach rural areas

• Micro level / private goods:• Development of

innovative, market-responsive products

Recommendations –Brazil

Characteristics• Robust and rapidly-growing middle

class• Both strong in microfinance and have

many “alternate” delivery channels• Multiple strong insurers and channels

competing for mi business

Gaps• Consumer protection• Regulatory support• Cost accounting and

controls• IT• Health and ag covers

Recommendations

• Regulation:• Assess structures in relation

to IAIS paper on inclusive insurance

• Proportional supervision• Consumer protection

strategies• Reduce/eliminate taxes

• Distribution• Clarify legal structures for

distribution• Coordinate with other regulatory

bodies regarding new distribution channels (e.g. mobile service providers)

• Meso level:• Capacity building of

insurance associations and their institutes

• Actuaries and risk tables• Sharing lessons

• Market education:• Develop for specific needs of

each market• Monitor effectiveness of

market education efforts

• Characteristics:• Vibrant, commercially sustainable market• 25 insurers report MI to FASECOLDA• FASECOLDA provides market education,

capacity building, data collection, representation

• Exploring alternative channels due to growing cost of distribution through MFIs and utilities

• Competition creates tension between profitability and value for clients

• Gaps:• 2 major channels (MFIs and utilities)

are nearly tapped out • High commissions erode value• Lack of high value products and high

value innovation

17.23% mi coverage ratio

The Case of - Colombia

Recommendations – Colombia

• Regulation:• Consider impact on MI

implications in decision making (ex. In-kind funeral)

• Distribution• Take advantage of existing

infrastructure such as call centers

• Meso level:• Continue to leverage

efforts of and share lessons from FASECOLDA

• Micro/institutional level:• Shift focus to long-term

thinking• Agriculture insurance

Opportunities/Recommendations• Further MI development will require both public

and private goods• Focusing on the gaps identified for each of the

market typologies will have the greatest effect• Key areas for action:• Legal framework• Distribution• Market education• Meso level capacity / infrastructure• Micro / institutional level capacity

Microinsurance in Latin America and the Caribbean – the Way Forward• Focus interventions on the Credit-led and Mass

market-led country types• Let early microinsurance champions begin to

develop and show commitment in Frontier countries before significant interventions are undertaken• Hybrid countries need less intervention but can

provide lessons and experience to the rest of the region

Growth will continue in the region, but without key interventions, it will continue on the same trajectory of basic products and a push to mass market

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The MicroInsurance Centre“Developing partnerships to insure the world’s poor”

www.MicroInsuranceCentre.orgmjmccord@MicroInsuranceCentre.org