Swiss Re have published their latest Sigma study on the subject of the microinsurance market and its potential to provide insurance cover for up to 4 billion people around the world. The microinsurance market is growing but still remains an area of huge potential growth as it currently focuses on few classes of risk and needs insurers to lead its development.
The study suggests that microinsurance is highly relevant as an ‘effective and viable risk management tool for low-income individuals’ and says that growth will come as the scope of risks covered broadens. Currently microinsurance has a strong focus on the credit life insurance area but other lines of business are getting more popular such as weather-index insurance for agriculture (which we cover here), health, term life, pension products and savings.
As many of the pilot microinsurance schemes, which are often launched in cooperation with organisations such as NGO’s and aid agencies, mature the re/insurance industry has an opportunity to step in and make these into commercial markets.
Swiss Re estimate that the microinsurance market could realise potential premiums of up to $40 billion in the future. Asia-Pacific is cited as the fastest growing region with Africa and Latin America having smaller (but growing) markets.
Swiss Re break down the potential market size into two sectors, of those who can be customers of a purely commercial market in microinsurance and those for whom subsidised aid or government supported microinsurance schemes will be more suitable (see image below).
The market potential is highest for life and health products according to Swiss Re. They cite agricultural insurance including crop, livestock and index-based weather insurance as an area with strong growth prospects and an effective way to deal with agricultural risks in emerging markets.
The report also discusses come of the possibilities for providing re/insurance cover for major disasters in the developing world and cites catastrophe bonds, catastrophe pools, weather derivatives and exchange traded instruments as possible solutions for low frequency, high severity event financing.
It will be interesting to see how the risk transfer market can help insurers tap the potentially huge microinsurance market. Providing innovative ways for insurers to underwrite their assumed microinsurance risk will be crucial to the markets success and solutions which can transfer those risks to the capital markets could be particularly effective. It seems there is a place in the microinsurance market for players at all levels of the re/insurance chain.
We suggest you download and read the full report from Swiss Re: Microinsurance – risk protection for 4 billion people.