16 March 2023
This article is shared with the kind permission of Reinsurance News
Interest in microinsurance is growing as governments and businesses are recognising the need for these products mainly after Covid-19 and climate related catastrophes, this situation has created a great opportunity for re/insurers to diversify their risk portfolios, said Katharine Pulvermacher, executive director of the Microinsurance Network.
In an interview with Reinsurance News, Pulvermacher said she has started to see a growing interest in microinsurance as people have realised that catastrophic events like the Covid-19 pandemic or the earthquakes in Turkey can bring life to a halt and be difficult to recover from its aftermath.
“I think that we are at quite a special tipping point. I’ve been seeing this growth of awareness partly from Covid, partly from climate impact, from climate change, that we need to act and really accelerate the pace of change with respect to rolling insurance out into markets where penetration is very often less than 3%,” said Pulvermacher.
“There is more interest in initiatives like the African College For Insurance And Social Protection, there is continuing strong growth in our own membership, as well as growth and interest from the media. Countries are also organising microinsurance events, when before they might have been regional events, while closing the protection gap has been a theme of important mainstream conferences globally.
“I see this gathering of energy and momentum, and it is this kind of momentum that you need in order to drive real meaningful change.”
As the realisation of bringing re/insurance to places with low penetration grows, there is also a growing recognition that solutions of different sizes that fit different scenarios need to be found.
This recognition has come as people are increasingly realising what is not insured, not only in low income countries, but in Asia or Europe too, where wealthier countries have been hit with floods, for example.
“There is also a realisation that this has to be about reducing and managing risk, not just about transferring risk, because at the end, that becomes counterproductive,” she added. “A simple analogy is the origin of insurance with the shipbuilders, they wouldn’t send, knowingly, a ship through a storm if they could avoid it or if it wasn’t seaworthy.”
It is with this background that Pulvermacher believes that there is in microinsurance a great opportunity for re/insurers to diversify their risk portfolios.
“I think that if you’re a reinsurer and you’re looking for future growth, not in the next month but five, ten or twenty years, you’re going to get that growth from the insurance sector growing,” Pulvermacher highlighted.
“And if you’re going to really diversify that risk portfolio, you also want to think in terms of the countries that have different risk profiles, exposure to different types of risk.”
This growth in insurance also includes microinsurance, as its potential market is large, taking in consideration all those countries with low insurance penetration, according to Pulvermacher.
“When you look at a map, for example Swiss Re’s Sigma Explorer, you can see all the blanks on countries where they don’t have data from. Why? Because those insurers are not listed, there are no publicly available reports, and this typically means that the market is not mature in that area,” said the executive director.
“That’s looking at it in terms of the maturity of the sector taken as an indicator. Then you could also look at it from a different point of view, which is if you look at the world income distribution.
“The poor areas are where people are living on less than $2 a day, and it’s around one or two billion people, which sounds like a lot, but there’s about 8 billion people on the planet. Then you have the wealthy on the opposite side and sitting in the middle you’ve got around 5 billion people that are emerging customers living on $2 to $20 a day.
“That is a massive market,” she highlighted, “There is a massive opportunity out there, and that is where the growth will come from.”
Pulvermacher noted that the Microinsurance Network has been able to identify that only about 8% of those in the middle are using any kind of insurance.
She said: “If we buy into the hypothesis that an effective insurance sector brings around economic stability and resilience, and that it promotes economic stability and growth,” she added, “it’s like an underlying foundation, by helping the middle class to emerge, by helping to reduce vulnerabilities and improve resilience and stability, everybody benefits.
“It’s hard not to think of an upside and from taking a very strategic kind of systemic view of things, if a reinsurer is looking at what is the future of the sector? What is the future of my firm? Where is the growth going to come from?
“You would think they want to be investing downstream to make this change happen and make it sustainable.”