Microinsurance, which provides protection for the world's working poor and their fledgling enterprises against financial catastrophe from the likes of natural disasters, severe weather, accidents and death, continues to experience strong growth in many global markets. Just as microfinance helps finance lower income segments in emerging markets, microinsurance plays a vital role in protecting them — and it also has the potential to add to insurers’ bottom line -- both in premium volume and in business improvements -- in more mature economies.
Microinsurance presents insurers growth opportunities in emerging economies via new and adapted products, distribution channels, and segments that each are a departure from how insurance has grown in mature economies. With approximately ten percent penetration of an estimated global market of four billion working-poor who are well suited for various forms of micro-insurance, the potential for growth is both promising and attractive.
Applying insights from developing economies to mature ones With slow growth expected to continue in mature markets, the efficiencies and creativity that characterize business in emerging markets are especially relevant globally. The IMF predicts that advanced economies will grow at 2.1 percent in 2013, while emerging economies will grow at three times that rate, at 6.3 percent.
Even though developed economies do not have the same customer segments, per se, as emerging ones, they too have significant numbers of working poor. The constraints of remote geographies, the working poor's difficulty in affording insurance, and differing technology infrastructures in emerging markets have led to innovations to and efficiencies in microinsurance schemes that are applicable to low growth and under-penetrated mature life, health and property & casualty markets.
The simple product design and group-based pricing for micro-insurance are easy to understand for first-time buyers, and technology-driven distribution and service models pioneered in emerging countries can reach customers in remote or otherwise inaccessible places. The drive for profitability in the microinsurance market also has helped simplify and expedite claims decision-making about what is covered and what is not, often en masse in the wake of severe weather and other disasters.
Other advances microinsurers deploy in emerging markets leverage foundational technologies that originated in mature economies and can be embedded back into conventional insurance schemes. For example, hand-held wireless devices that do not require traditional telecom and computer network infrastructure can capture customer information in the field during application, policy issuance, premium collection, and claims servicing. In addition, mobile applications can quickly transmit critical data to insurers' systems to determine claim eligibility.
Moreover, as with conventional insurance, technology is driving advancements in the deeply analytical aspects of the microinsurance business, such as customization of products and services to the unique needs of micro-segments, as well as in fighting fraud and improving loss control technologies. All of this makes new insurance coverage easier to develop, deploy and administer regardless of location.
All of these advancements can help insurers penetrate relatively poor segments of the population in more developed economies, as well as promote innovation and efficiency across the value chain, from streamlined products and pricing, to more direct marketing and distribution, to efficient billing and claims.
Targeting the US Market
Opportunities to reach the under- and uninsured exist in all U.S. sectors. According to the 2010 US Census, 49 million Americans lack health insurance, and healthcare reform will require inventive approaches for low cost, direct-access coverage. In the life sector, a 2011 LIMRA study estimates 35 million middle market households in the US are underinsured, and at least 17 million are considering a life policy purchase in the next year. And, the property and casualty sector has experienced multiple quarters of premium declines as a result of the economic downturn, which in turn has driven new innovations and cost-cutting.
While the individual ticket size may be smaller for new streamlined schemes, risk determination at a group level and large volumes can compensate for low individual premiums, while new distribution and claims approaches can trim costs. Forward-thinking insurers can partner with local governments, non-government organizations, and private distribution partners to generate new microinsurance revenue streams.
The Bottom Line
Developed markets experiencing stagnating economies, increasing income disparity, and the risk of more consumers dropping below the poverty line are likely to see insurers adapt microinsurance schemes to increase insurance adoption and drive growth. By reaching out to typically uninsured customer segments and by innovating across the insurance value chain, insurers can serve those most at risk across emerging and developed markets, making a positive social and economic impact, and grow their bottom line at the same time.
About the Author: Marik Brockman, a partner in PwC’s Insurance Advisory Services Practice, has fourteen years of experience in marketing and strategic planning roles.