Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Make microinsurance transparent and easy to understand


Microinsurance is becoming a hot topic among insurers and reinsurers looking for new sources of revenue and new markets to enter. It’s an opportunity the size of which hasn’t been seen by the insurance industry for many years but there are some key points to remember when it comes to introducing microfinance products in developing nations.

Just recently Guy Carpenter CEO of International Operations Henry Keeling said that the microinsurance market opportunity could amount to $5 trillion. That’s a huge market (an estimated 4 billion of the poorest people in the world) of untapped potential customers for insurers, and that many new insurance policies equals a massive market for reinsurers to back up those schemes.

However, stories like this (from India’s Business Standard) highlight the issues with bringing products as inherently complicated as insurance to developing countries. The policies must be transparent and there must be no room for confusion of the customers. In this situation farmers in India aren’t being paid out to because they had two insurance policies. One a weather insurance policy and the other a crop insurance policy they were given when they took out a microfinance loan. This shouldn’t happen.

Entering into the microinsurance market needs to be done carefully. Insurers need to ensure they work closely with local agents and representatives so that education about the products and their benefits are available to potential customers. As simple as an index-linked weather policy is to understand (eg. if it rains X amount you get X in payment) if the farmers you sell it to aren’t aware they could invalidate it by holding a second policy on the same plot of land then it is a pointless endeavour.

The point of microinsurance is that it is not just a great market opportunity but it is also doing social good in the areas where it is sold. Many schemes are doing this but it seems some are not adhering to the really important principles of transparency, simplicity and education. Microinsurance can be a catalyst for growth in developing nations; by offering some protection for their livelihood you encourage development, understanding of finance and a regular income, these are really important points and we mustn’t forget them

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