Microinsurance evolution, a Latin American perspective.
Microinsurance is referred to the type of insurance that aims to the base of the pyramid (BoP) population, generally those ignored by mainstream commercial and social insurance schemes. It emphasizes the importance of understanding the needs, preferences and characteristics of this target group: the low-income household, the working poor and the under-served. Microinsurance has the potential to play a very important social and economic role by breaking the vicious circle of poverty and vulnerability that affects the low income segments of the population. It can also help local economies by redirecting funds to be invested into high-return/high risk assets, that otherwise would be allocated in low return investments or even kept without investing. The potential market for Latin America is estimated in 360M of people, and for many insurers it is a huge opportunity to position its brand in a population that eventually will demand more insurance products. When you look into these markets you can distinguish 3 clearly separate phases of evolution of Microinsurance:
- Phase I: Easy products to administer, such as mandatory life insurance tied to micro-finance products.
- Phase II: Products get more sophisticated providing more options and benefits, turning into voluntary schemes, usually based on health, life and funeral insurance type of products while adding distribution channels to reach a broader audience.
- Phase III: More complex products with emphasize in adding value to customers and an extended network of multiple distribution channels.
Currently Microinsurance in Latin America is doing pretty well in Phase I and is walking through Phase II. The major challenge nevertheless resides in including more commercial oriented products which typically are developed in Phase III, such as index-based insurance products. Technology plays an important role in supporting microinsurance strategies as they require an innovative approach in areas such as product, rates, distribution, claims and collection. Agility, scalability and high volume-low cost processing are important features for insurers to consider in their supporting systems. In our experience most of insurers in the region struggle to obtain these features from their current systems and enabling those innovatives approaches, which by the way, are also desirable to serve the upper-income segment. Are your systems up to the task? Feel free to comment!