Martin Herrndorf

From Potential to Market – the Microinsurance Explosion

Can insurance to the poor work – on a really large scale? The microinsurance compendium says “yes,” and highlights successes across the globe – like the 500 million covered risks.

The new microinsurance compendium, published by the International Labour Organization through its Microinsurance Innovation Facility six years after the initial volume, is an impressive effort of the microinsurance sector to reflect its progress and lessons learned over time.

A success story – part 1: scale

The numbers presented in the compendium are impressive. The total number of “risks covered” has increased from 78 in 2006 to 500 million in 2011. Asia leads the pack, with 350 to 400 million risks covered (up from 66 in 2006), but Latin America with now 45-50 million and Africa’s18 to 24 million risks covered had equally impressive growth rates.

With the insurance industry struggling to maintain growth in developed markets – does this prove Prahald’s BoP hypothesis of profitable business opportunities at the Base of the Pyramid right?

Only in parts. Most of the growth comes from big, government-backed schemes – a whopping 300 million people are covered by a public health insurance scheme in India, and the governments subsidises policies in other areas like crop and lifestock. Another big chunk of the growth comes from China, where the authors admit their difficulty in getting their hands on solid data, and where the government and public insurers still play a strong role in the sector.

On the other hand, some companies are doing well, and feature several million clients. Private players mainly drive the strong Latin American markets, like Peru and Colombia, even though public support programmes do exist, and are present on a broad range of other markets. In fact, most private companies that were subject to a survey reported their goals as entering a new market and realising profit opportunities – realizing CSR goals appears only as the third-important goal.

A success story – part 2: diversity

But the development of microinsurance holds a second success story – diversity!

Initially (in what the publication calls “Phase1), the market was dominated by funeral policies and credit-linked microinsurance – relatively simple products. But the market has evolved since then, and now features more complex and innovative products, like agriculture and health insurance, that require a range of stakeholders and large partnerships to function. For example, a health microinsurance scheme will typically involve an insurer, a distribution partner, a network of contracted hospitals and doctors and a technology provider who supplies smart cards that help clients to access health services without having to make difficult “out of pocket” payments.

This diversity also holds in other areas. The Philippines are highlighted as an interesting case: Side by side, different models for microinsurance have been tested in the market – “Mutual Benefit Associations”, commercial insurers, policies brokered by the specialised intermediary MicroEnsure and a publicly-run health insurance scheme exist side-by-side. But other countries have similarly diverse stakeholder sets – the use of utility companies and retailers to distribute microinsurance policies is well-established by now, especially in Latin America, and early experiments with cell phone companies are promising, especially where mobile payment systems have taken hold.

Lessons for the BoP discussion?

Which lessons does the microinsurance success hold?

Specialisation matters: While terms like “BoP” or “inclusive markets” are used in the microinsurance debate, the discussion on business model, technologies etc. can become quite technical and difficult to understand for outsiders. Sometimes, the microinsurance debate breaks down into “sub-sectors” (e.g., groups discussing satellite-based agriculture input insurance). Similarly, the “BoP scene” could benefit from stronger sector discussions and networks, that help to break down abstract concepts like “distribution challenges” into manageable, actionable pieces.

Cross-sector collaboration matters: As the other side of the coin, specialisation allows new and interesting partnerships across sector boundaries. Microinsurance for low-income housing? For agriculture inputs like seeds and fertilizers? For credits? While such cross-sector offerings are available, it’s critical that parties in both sectors have “done their homework” before reaching out across boundaries.

Sector-level learning takes time: Building the microinsurance success story has taken decades, from first experiments to the market success visible today. Large institutions, like the ILO or the Munich Re Foundation, have supported the developed this development. While hosting the 8th International Microinsurance Conference may be less flashy and exciting then hosting the 1st, the predictability and routines established in the sector have helped to build long-term networks required for the trustful exchange of best (and worst) practices.

It takes a family: The development of microinsurance has not been a private nor a public success story, but one driven by organisations as diverse as global multi-billion corporations, small-scale NGOs in rural India, and, notably, as group of microinsurance experts that have pursued the topic, partly over decades (and who contributed a broad range of articles in the compendium).

What do you think…

…are there other sectors with similarly successful BoP models?

…in which other areas could can the success of microinsurance be replicated?

…and what would it take to make that happen?

Full disclosure: The author has contributed to a chapter called “Teaching elephants to dance: The experiences of commercial insurers in low-income markets” published in the compendium.