World Bank IFC by jolinmilioncherie


									 World Bank / IFC
Global Insurance Conference 2011
Developing Insurance in the Face of New Challenges
                 June 1 – 2, 2011
                 Washington, D.C.

                   Rolf Hüppi
Increasing sustainable (Re-) Insurance Markets in
Emerging Economies


•   Local and international insurers are extensively present in emerging
    economies but,
     - the industry needs to adapt new business models to
       effectively serve these markets
•   Lower income and poor people - the Majority - need financial
    protection, however,
     - barriers for them to access providers must be overcome
•   All measures towards facilitating financial inclusion contribute to the
    market expansion

The Insurance Industry in Emerging Markets

• The local and international insurance companies are well implanted.
  They address the conventional markets.
• According to a a study published by Swiss Re:
    – The market penetration (insurance premium as %-age of GDP) is low; from
      less than 1% to 3% of GDP (versus 5% to 10% for industrial countries)
    – The market density for life insurance (premium per capita) is – in emerging
      economies - on average less than US$ 50 compared to some US$ 2’000 in
      industrial countries

• Traditional insurers serve
    – The formal economy
    – People who are wealthy, in upper middle-income sectors and educated
    – People who are banked
    or less than 40% of people and 10% of businesses

 Potential Market Size of Global Microinsurance

• According to World Bank statistics
 some 4 billion people are in lower
 income and poor sectors

• Insurance solutions for them represent                                                                                       Conventional
                                                                                  Medium to                                  Insurance market
  a potential market of US$ 30 – US$ 50                                          high income
                                                                 » $4/day

                                            Poverty line
• Some 2.6 billion people represent a
  segment that is commercially viable for                                   Microinsurance market                           2.6 billion people
  the insurance industry                                                                                                     US$ 33 billion
                                                           » $2/day         (commercially viable)                                market

• Innovative schemes for the poor
  through Public Private Partnerships are
  possible                                                                                                                      1.4 billion people
                                             »$1.25/day                     Microinsurance through                               US$ 7 billion
• The potential is easy to see but                                          aid/government support                                   market
  difficult to realize
                                                                                 Source: Swiss Re Sigma No. 6/2010
                                                                                 Microinsurance – risk protection for 4 billion people

Vast underserved Markets

• Traditional insurance products and services are not available or are
  not suitable for:
    – Some 70% of people (who are in the middle or lower income sectors,
      poor or very poor)
    – Some 90% of all businesses (formal and informal)

• The „Majority“ is underserved or not served at all
• Why?
    –   Do people of the Majority need insurance?
    –   If so, what barriers do they face?
    –   What are the key challenges for the insurance providers?
    –   How can market penetration and density be increased?

The Majority needs and wants Financial Protection

• People of the Majority need financial protection as much as you and
  I do – or more!
    –   They need to shield themselves from economic shocks
    –   Insurance may be their only asset in case of need
    –   Financial protection is an important element of financial inclusion
    –   Insurance protection is the cheapest form of capital

• They define their financial protection needs, in order of priority, as:
    – Health related insurance
    – Life and funeral expense insurance
    – Savings insurance
    – Property and agricultural insurance

The Majority faces Barriers in accessing suitable
Risk Transfer Solutions

• Low income and poor people
    –   lack the necessary financial literacy
    –   cannot access insurance companies
    –   have no financial transaction capability
    –   may not trust an unknown “formal” institution

• Insurance „is not bought“; it must be sold
• Products that may be available are not affordable and not
  responsive to the Majority’s needs

The Insurance Industry must overcome Key

•   Accessing the underserved markets
•   To communicate at the levels of customers and distribution channels
•   Building trust in unfamiliar institutions and in intangible products
•   Designing simple, affordable and reliable products
•   Securing mechanisms for the collection of premiums and the payments
    of claims
•   The cost of handling small claims
•   Achieving the necessary efficiency to administer small transactions
•   Insurance regulation

(Re-) Inventing the Insurance Business Model

• Success depends on the ability of providers to create non-traditional,
  sustainable ways of doing buiness
    – Microinsurance is not „small insurance“

• The needs of the customers must be reflected in
    –   Affordability
    –   Simple products
    –   Clear coverage (claim) triggers
    –   Understandable communication (language and illustrations)
    –   Efficient access and delivery
    –   Convenient collection and payment systems
    –   Immediate claim payments (settlements instead of investigations)

• Customers can be reached through mass-distribution systems
• Front-end to back-end integration on efficient IT and processes
  platforms are prerequisites for necessary low cost operations

Some important Developments are supportive

•   Extending banking services to the lower income and poor sectors will
    play an important role
    - Correspondent / agency banking
    - Mobile (phone) banking

•   Public Private Partnerships offer opportunities
    - Linking insurance with government subsidies to the poor (example:
      Oportunidades program in Mexico)

•   Insurance regulation is responding (in parts)
    - Supporting the simplification of products and insurance documentation
    - Expanding the concept of group sales versus individual policies
    - Easing the rules on distribution
    - Requiring insurance companies to serve rural areas (example India)

Sustainable Market Expansion

• The Insurance Industry can expand market penetration and insurance
  density in emerging economies through better focus and more innovation
• All measures to drive financial inclusion are relevant: Banking, Credit,
• Public Private Partnerships involving Government and Development
  Agencies are necessary to reach the very bottom of the pyramid
• Adapting regulatory systems to the microinsurance market for ease of
  doing business - whilst protecting consumers – is most helpful
• Allocating capital to new and sustainable provider models will support the
  market expansion

An important Role for Multilaterals

Multilaterals, at the juncture of the public and private sectors, can
contribute by:
• Encouraging governments to include private sector insurance schemes
  in their social subsidy programs
• Promoting regulatory changes towards adaption of insurance
  regulations on products and distribution of microinsurance
• Advancing educational programs on financial inclusion
• Recommending the inclusion of financial protection solutions in
  distribution systems when investing in organizations that reach people
  of the Majority
• Introducing microinsurance programs to Banking, Credit and Savings
  investment projects
• Capitalizing or funding organizations that are focused on micro-
  insurance and encourage successful models to increase their reach

The ParaLife Case Study

• ParaLife
   Ø was formed in 2007 (with IFC as one of the investors)
   Ø maintains Operating Centers in Mexico (since 2007) and Colombia
     (since 2009)
   Ø is expanding to 12 additional countries of Latin America, starting in
   Ø has so far
        - provided over 1’300’000 of low income and poor customers with financial
        - extended over US$ 250’000’000 of life insurance coverage
    Ø projects reaching in excess of 2’000’000 customers by year-end 2011
    Ø plans to financially protect over 5’000’000 customer by 2014

               Thank you for your attention

ParaLife Group
Gartenstrasse 33
8002 Zurich / Switzerland
Tel:      +41 43 344 49 90
Fax:      +41 43 344 49 99                              May 2011


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