News & Commentary

01:33 PM
Connect Directly
Twitter
Facebook
Google+
RSS
E-Mail
50%
50%

Microinsurance: Monitoring a Maturing Market

Microinsurance may cover as many as 1 billion people by 2020, according to the Microinsurance Network, but questions remain as to the potential profitability of the business in a given geography.

Last week WillisWire blogger George Haitsch asserted that one of the greatest risks of 2013 for businesses of all kinds is missing out on emerging markets. That applies to the insurance industry itself, and includes the potential represented by the burgeoning microinsurance market in the BRIC bloc and elsewhere. A couple of recent announcements suggest that the opportunity continues to mature.

Yesterday the Luxembourg-based Microinsurance Network's chairman Craig Churchill asserted that microinsurance currently provides coverage to 500 million people and that as many as 1 billion may be covered by 2020. The previous day, Jan. 29, the International Finance Corporation (IFC), a member of the World Bank Group focused on private sector development, issued a joint release with MiCRO (Microinsurance Catastrophe Risk Organisation, Barbados) announcing that the two organizations had embarked on a $1.96 million project to help thousands of low-income micro entrepreneurs in Haiti protect their livelihoods against weather-related risks and natural disasters.

“The expansion of the sector is being facilitated by the emergence of alternative distribution channels and public-private partnerships, the adoption of technological innovations as well as an increased awareness amongst insurance companies of the business case for microinsurance,” comments Eugenio Velasques of Brazilian insurer Bradesco Seguros e Previdência, quoted in the Microinsurance Network's statement.

If the Microinsurance Network's Churchill is right about 500 current insureds and 1 billion within the decade, then this could represent a significant opportunity not only for insurers seeking emerging markets, but for the industry to foster virtuous economic cycle that fosters increasing wealth through securing property. Much will depend on whether those covered are genuine policyholders or beneficiaries of some kind of charity or subsidy.

Everybody laments poverty but microinsurance is one of the few things prosperous people may be able to do to effectively combat it. Charity, which flows in after incidents such as Haiti's 2010 earthquake, speaks well of intentions but rarely produces enduring improvements. Investment, on the other hand, has far greater potential to have long-term results. In poor countries, industrious people are hampered from accumulating wealth because they lack the means to protect their assets against risk. Micro lending and microinsurance could, at least theoretically, provide both a risk-spreading mechanism to address common hazards, such as weather events, as well as financial institutions to protect their accumulated capital.

The challenge is to make microinsurance, and microfinance in general, a profitable enterprise. Some Third-World observers have decried the very idea as exploitation, but their position is wrong, both morally and practically. Ultimately the question is a practical one: can investment capital help to make poor people become more prosperous. That's the only question worth asking. Otherwise we risk keeping some people impoverished in order to avoid others growing more prosperous. But opponents are morally wrong too. Charity creates a benefactor/dependent relationship; trade enables autonomous moral equals to act for mutual benefit.

[To read about how MiCRO operates in Haiti, see MiCRO Demonstrates Viability of Parametric Underwriting for Microinsurance Coverage.]

If microinsurance can be made profitable, it will draw more capital to places that previously couldn't expect such investment. People able to secure small amounts of wealth can build more wealth. Small enterprises that are not knocked back by small shocks can become larger enterprises, and accumulated local capital can also be invested with less risk. Greater wealth can also help to further diminish risk through measures such as building codes and civil engineering projects. It was risk mitigation mechanisms — such as insurance and limited liability incorporation — enabled the First World in the first place; they have the potential do the same for the Third World.

The concern that remains in some markets is how much microinsurance represents a profitable business and how much it represents a charitable enterprise. In Haiti, it still seems to be more the latter than the former: IFC’s $1.96 million project with MiCRO includes a $1.7 million performance-based grant and $260,000 in technical assistance from the Global Index Insurance Facility (GIIF, another World Bank entity).

Sometimes one has to invest in the possibility of investment, and maybe that's the case in Haiti and other emerging markets. But a virtuous economic cycle capable of transforming poor communities into prosperous ones will require the kinds of capital osmosis created by profitable investment.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Byurcan
50%
50%
Byurcan,
User Rank: Author
2/1/2013 | 5:33:25 PM
re: Microinsurance: Monitoring a Maturing Market
Interesting, much like microloans and financial services targeting the underbanked in these markets, so too is the insuance industry has the same idea.
Register for Dark Reading Newsletters
White Papers
Video
Cartoon Contest
Write a Caption, Win a Starbucks Card! Click Here
Latest Comment: This is a secure windows pc.
Current Issue
Security Operations and IT Operations: Finding the Path to Collaboration
A wide gulf has emerged between SOC and NOC teams that's keeping both of them from assuring the confidentiality, integrity, and availability of IT systems. Here's how experts think it should be bridged.
Flash Poll
New Best Practices for Secure App Development
New Best Practices for Secure App Development
The transition from DevOps to SecDevOps is combining with the move toward cloud computing to create new challenges - and new opportunities - for the information security team. Download this report, to learn about the new best practices for secure application development.
Slideshows
Twitter Feed
Dark Reading - Bug Report
Bug Report
Enterprise Vulnerabilities
From DHS/US-CERT's National Vulnerability Database
CVE-2017-0290
Published: 2017-05-09
NScript in mpengine in Microsoft Malware Protection Engine with Engine Version before 1.1.13704.0, as used in Windows Defender and other products, allows remote attackers to execute arbitrary code or cause a denial of service (type confusion and application crash) via crafted JavaScript code within ...

CVE-2016-10369
Published: 2017-05-08
unixsocket.c in lxterminal through 0.3.0 insecurely uses /tmp for a socket file, allowing a local user to cause a denial of service (preventing terminal launch), or possibly have other impact (bypassing terminal access control).

CVE-2016-8202
Published: 2017-05-08
A privilege escalation vulnerability in Brocade Fibre Channel SAN products running Brocade Fabric OS (FOS) releases earlier than v7.4.1d and v8.0.1b could allow an authenticated attacker to elevate the privileges of user accounts accessing the system via command line interface. With affected version...

CVE-2016-8209
Published: 2017-05-08
Improper checks for unusual or exceptional conditions in Brocade NetIron 05.8.00 and later releases up to and including 06.1.00, when the Management Module is continuously scanned on port 22, may allow attackers to cause a denial of service (crash and reload) of the management module.

CVE-2017-0890
Published: 2017-05-08
Nextcloud Server before 11.0.3 is vulnerable to an inadequate escaping leading to a XSS vulnerability in the search module. To be exploitable a user has to write or paste malicious content into the search dialogue.

Dark Reading Radio
Archived Dark Reading Radio
In past years, security researchers have discovered ways to hack cars, medical devices, automated teller machines, and many other targets. Dark Reading Executive Editor Kelly Jackson Higgins hosts researcher Samy Kamkar and Levi Gundert, vice president of threat intelligence at Recorded Future, to discuss some of 2016's most unusual and creative hacks by white hats, and what these new vulnerabilities might mean for the coming year.