The uptake of microinsurance by low-income earners in parts of the developing world is growing rapidly according to data in the annual report of the International Labour Organisation’s Micro-insurance Innovation Facility. Many types of products make up the microinsurance universe, from life and health, to property, to livestock, but one area playing a key role in helping to protect smallholder farmers and business owners in developing nations is weather index insurance.
The ILO says that microinsurance uptake has accelerated in the last twelve months. In 2007 there were thought to be around 78 million microinsurance policyholders. This number grew to 135 million people by the end of 2009. Now estimates suggest that as many as 500 million people benefit from some form of microinsurance cover around the world. The distribution of microinsurance remains similar and there has been no noticeable shift to new continents. The mix is still heavily weighted to Asia where the largest push to launch microinsurance schemes has been. Roughly 80% of microinsurance policies are in Asia, 15% in Latin America and 5% in Africa.
India is still the dominant market for microinsurance policies with approximately 60% of the policies sold there it is estimated. Significant growth is being seen in countries such as Cambodia, the Philippines, Indonesia and Sri Lanka.
Weather index insurance is actually quite a small part of the overall microinsurance universe, but one which is growing in importance. Currently it is estimated that between 9 to 12 million people in India alone benefit from some sort of weather index based or parametric microinsurance policy. The last twelve months has seen these policies at work as claims have been paid in India, the Philippines and also in Africa for weather conditions ranging from drought to heavy rainfall.
It’s expected that weather index and parametrically triggered microinsurance policy uptake will grow as the pilot schemes broaden their reach, particularly in India. The Philippines is also cited for rapid growth in weather index insurance.
How these schemes will eventually impact the global reinsurance market is as yet unclear, but at some point in the not too distant future there is going to be a lot of index-based or parametric weather risk in developing nations which will need underwriting and possibly transferring to the capital markets.
Subscribe for free and receive weekly Artemis email updates
Sign up for our regular free email newsletter and ensure you never miss any of the news from Artemis.