The global penetration of microinsurance cover is set to double from the 500m people currently covered to more than 1 billion by 2020, according to a statement from the Microinsurance Network. Governments, insurers and reinsurers are all expected to broaden he geographic scope and range of products as they seek to make insurance products available to more of the world’s low-income people, particularly in developing nations.
“Microinsurance, which currently provides coverage to 500 million people, could pass the 1 billion mark by the end of the decade,” said Craig Churchill, Chair of the Microinsurance Network and Head of the ILO’s Microinsurance Innovation Facility.
The growth of the microinsurance sector has been impressive with many of the sectors products taking their inspiration from modern risk transfer techniques such as index-based insurance covers and parametric weather insurance covers. The weather and catastrophe microinsurance market is expected to continue growing in years to come, although much of the sectors potential for growth comes from micro health and life insurance covers.
A trend has also emerged for attempting to bundle both property and life covers within single microinsurance policies, enabling people on lower-income to receive easy to understand and broad insurance protection. The covers are often designed to purely enable recovery after catastrophic events which in the past had led to poverty and loss of life due to the destruction of homes and livelihoods.
“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,” commented Eugenio Velasques from Bradesco Seguros e Previdência, one of the leading insurance companies in Brazil.
The challenge, as we’ve highlighted before, will be in finding a way to sustain the growth of microinsurance in a commercially viable manner to keep global insurers and reinsurers engaged in underwriting many of these schemes. So many of the pilot schemes are subsidised or funded by government backed organisations and funding rarely lasts forever, so the sector needs to establish how it will sustain itself should subsidies dry up.
The opportunity for the global re/insurance sector could be huge, and the knock on effect of growing the amount of insurance premium exposed to weather, climate and catastrophe events will provide an opportunity for reinsurance and collateralized markets to provide the underlying cover for these products. The capital markets may find itself the most suitable place to offload large amounts of risk linked to microinsurance policies, particularly where the underlying policies are linked to weather and catastrophe conditions, which might make catastrophe bonds a suitable way to underwrite the scheme at the sovereign level.
The microinsurance catastrophe bond (whether commercial or sovereign), used to underwrite large index based or parametric weather and catastrophe microinsurance products, could become a very interesting investment opportunity for the capital markets. Such instruments could also tick a box in large institutional investors, such as pension funds, social impact investing aspirations which would make them a great way to continue financing/underwriting microinsurance schemes.
Microinsurance is one of the innovations of recent times within the re/insurance market and it will be interesting to see how the global re/insurance and capital markets end up supporting a sector that provides coverage to 1 billion people.