Insurers Seek Growth in Developing Markets
Monday, February 12, 2007
Seeking potential sources of future growth, AIG and its international rivals are racing to sell insurance in the developing world, from sprawling markets like India to smaller ones like Romania and Nicaragua. In remote areas, insurers must teach the concept of insurance to populations who have never bought any. Sometimes, as in parts of northern Uganda, the local language doesn’t even have a word for it.
To penetrate these markets, insurers are devising unusual policies, charging as little as 50 cents to insure everything from television sets to burial costs. They’re forgoing traditional documentation requirements, sometimes selling life insurance to people who don’t know when they were born. Last year, global insurance giant American International Group Inc. opened a garage-size office in this dusty town of about 50,000. Coming up soon here: a policy that insures a cow for a $10 annual premium.
Seeking potential sources of future growth, AIG and its international rivals are racing to sell insurance in the developing world, from sprawling markets like India to smaller ones like Romania and Nicaragua. In remote areas, insurers must teach the concept of insurance to populations who have never bought any. Sometimes, as in parts of northern Uganda, the local language doesn’t even have a word for it.
To penetrate these markets, insurers are devising unusual policies, charging as little as 50 cents to insure everything from television sets to burial costs. They’re forgoing traditional documentation requirements, sometimes selling life insurance to people who don’t know when they were born.
Instead of relying entirely on agents, AIG and many others are partnering in some markets with nonprofit microloan programs, operations that lend small amounts of money to the poor. Many microlenders provide a form of life insurance that will pay off the loan and sometimes also compensate survivors if the debtor dies. AIG currently has roughly 2.25 million life-insurance policies on microloan recipients, mostly in Uganda, Mexico, India and Brazil.
Microlenders say that providing insurance can benefit borrowers by teaching them greater financial sophistication. It’s a “natural extension of our role,” says Scott Graham, senior manager of strategic alliances for Washington, D.C.-based Finca International, a nonprofit that operates microlending programs in 21 countries.
Microlending won Bangladeshi banker Muhammad Yunus the Nobel Peace Prize last year. And just as major banks are being drawn to that business, big insurers are increasingly lured by what they call “microinsurance.” It’s a way for insurers to wedge themselves into new markets — markets they see as crucial to the future of the industry that in 2005 collected $3.4 trillion in premiums.
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