Reflections on MiCRO: Building resilience through parametric insurance
MiCRO recognized as Celent's Model Insurer 2018 Winner
Every year Celent hosts its Innovation and Insight (I&I) Day. Attendees hear firsthand about firms who have achieved success with IT-related innovation and learn how they can emulate their success.
The event also serves as a showcase for the winners of Celent's Model Awards Program.
Model Insurer Program and Model Insurer of the Year:
Celent Model Insurer is awarded for best practices of technology usage in different areas critical to success in insurance, and is the main award that an insurance carrier can receive from Celent. It is an annual program, celebrating its 12th anniversary in 2018.
The winners of this year’s edition were announced last Tuesday and the case studies are already available for Celent customers to download. Take a look at the Winners of the 2018 Model Insurer Awards.
Every year, we also recognize one initiative as the overall Model Insurer of the Year, the top honor. Model Insurer of the Year is not a specific category and insurers do not nominate themselves for this award. Instead, Celent judges select one initiative from those already submitted.
There are no specific criteria for Model Insurer of the Year. However, typically, the winning initiatives deliver impressive business benefits to the insurance carrier, while also exhibiting one or more of the following characteristics:
- A radically different (or a step change from the existing) technology platform and operating model.
- A transformation of the institution’s capability to innovate.
- The creation of a lasting social impact.
- A stand out from the crowd and uniformly impress Celent judges.
The 2018 Model Insurer of the Year Award was presented to MiCRO - Microinsurance Catastrophe Risk Organisation for its index-based, microinsurance product which provides coverage to an underserved group of insured; helping low-income entrepreneurs become more resilient, competitive, and improve their standard of living.
Jorge Barrientos, MiCRO’s Business Manager for Guatemala, receives the 2018 Model Insurer of the Year Award
Innovation in insurance:
During I&I Day we shared some great cases of insurers with innovative and impactful projects; all of which deserve recognition, particularly because innovation in insurance is not easy.
Our research shows that innovation in insurance is, most of the times, inconsistent. We see initiatives rebound; every year we may see the same initiatives brought up without success. In part, this is explained by the fact that we lack of a disciplined approach and common language around what is innovation. It’s not uncommon to have processes that govern-out innovation, like when we try to run the innovation projects through the standard project approval process they usually fail the test. Don’t you feel sometimes that it is easier to approve a multi-million, multi-year core system project than getting approval for the few hundred thousand innovation pilot project?
When looking at the possible barriers to innovation, the pressure of day to day business and the company inertia stand out as the most relevant. Does this sound familiar?
Source: Celent. Lower score represents a higher barrier
Now, what would happen to these barriers if you create a company with the only purpose to be an innovative insurer? This is exactly what I see in this year’s Model Insurer of the Year; a company targeting a specific segment of customers and with a purpose to come up with protection solutions that no one else is offering in the market.
Average annual loss of assets due to natural catastrophe events in low and low-middle income countries is ~$29.1 billion, from which only ~$.9 billion is recovered, resulting in 93% protection gap. Insurance protection for the most vulnerable is urgently needed and MiCRO comes to contribute solving this issue.
As part of the award ceremony, I had the chance to chat with Jorge Barrientos, Business Manager of MiCRO in Guatemala, where the initiative was launched first. Here is a brief summary of this chat and my key takeaways:
1) How did you decide on this specific product?
MiCRO has real focus and a well-defined purpose: Its mandate is to strengthen resilience against natural catastrophes, designing innovative risk management solutions that are affordable and appealing to a low income and highly vulnerable population segment. Solutions need to be sustainable too.
These premises guided MiCRO towards an index-based (triggered based on parameters) solution that covers indirect and consequential losses and protects against relevant perils for their clients.
2) Tell me about challenges, if any, that you encountered in the process.
Regulation is a hurdle but not an impediment: The solution needed to be different from traditional insurance since individual underwriting and loss adjustment would make the product too expensive. This led them to a parametric solution protecting business continuity instead of direct losses, but these two concepts were not specifically foreseen in the current insurance regulation.
Jorge summarized their main challenges as:
- Getting the innovative solution authorized in a heavily regulated market. This implied many meetings and building awareness and understanding about these topics. It took around two years in the first country; it went down to six months in the next country to be approved.
- Finding a local partner that was willing to move out from their comfort zone. “It requires more than just being excited about the initiative.”
- Aligning local partners in order to reach scale with responsible sales. A mix of having the right incentives and providing financial education.
3) Why is this solution important to your customers?
Insurance is an effective way to build financial inclusion: Traditional insurance has very low penetration, with premiums representing 1.21% of GDP in 2016; this is extremely low even compared to other Latin American countries (3.18% of GDP at regional level). Their customers are especially vulnerable to natural disasters and their traditional coping mechanisms, which includes selling assets, seeking lending from loan sharks or pulling kids out of school to work, don’t help them break the vicious circle of poverty.
In this context, a product that focuses on business continuity at an affordable price comes as the best solution to make them resilient to natural catastrophes. Watch here their customer stories and learn how insurance can make dreams possible. During the 12 month pilot in Guatemala 3,500 SMEs were covered and 58% of insurance policies were issued to women.
4) What is the technology behind this insurance solution?
Innovation means facing novelty situations, not always covered by commercially available solutions: The process needed to be automated ensuring accuracy and reliability. Typically the process looks like this:
- The extreme event is registered by a scientific agency.
- A calculation platform determines impacted locations and payout.
- Insurance Co. identifies affected policies, payment amounts and pays to the bank (distributor) that then credits it to the individuals.
MiCRO looked for 3rd party software for the calculation platform without luck. They opted for in-house development of an automated platform (MiCRO Calculation Application – MiCAPP). The rest of the solutions are the ones already in use by MiCRO and their business partners.
5) What’s next for Micro?
A history of growth and continuous improvement: MiCRO expects to improve the platform GUI and provide additional services such as BI for the distribution channels along with SMS early warning systems. They are also considering Blockchain for traceability and transparency of payout processes.
From the business perspective, MiCRO is looking to reach scale locally and expanding into more countries.
I want to congratulate MiCRO for their great initiative and achievement and wish them success in their upcoming projects.
If you would like to learn more about MiCRO you can download the case study report (for Celent customers only), download the presentations from I&I Day (for registered attendees only) or send me an email (email@example.com).