Key Insights from the Microinsurance Network June Member Meeting: Day 1

As the global climate crisis continues to intensify, microinsurance becomes even more relevant in helping vulnerable communities to develop resilience. Currently, however, insurance penetration is very low, particularly in the regions that could most benefit. The 2023 Landscape report shows that 11.5% of the target population is covered by microinsurance - a significant increase from 2019, but this still leaves around 90% without coverage. Lorenzo Chan, Chair of the Board of the Microinsurance Network (MiN) and President and CEO of Pioneer Inc. highlighted this, at the annual June Member Meeting, which took place in Luxembourg between the 18^th and 20^th June. He also pointed out that the industry has been working hard to advance the Network’s mission of increasing resilience through access to financial tools, and that collaboration across the industry is key to achieving these goals. 

Over the three days of the meeting - a key moment in the global microinsurance and inclusive insurance calendar - this idea was reiterated through the different presentations and discussions that took place, and we are going to share these with you over the next three months.

Luxembourg as a major supporter of inclusive finance

This year’s annual member’s meeting once again took place in Luxembourg - the location of MiN’s headquarters and a country that plays an important role in supporting the sector. Paul Weber, a diplomat at the Ministry of Foreign and European Affairs, Defence, Development Cooperation and Foreign Trade, responsible for Luxembourg's Development Cooperation in inclusive and innovative finance and MiN’s Board member, highlighted during his opening remarks on Day 1 that the country has invested in inclusive financial tools, including microinsurance. Not only has the government allocated 1% of its gross national income to official development assistance (ODA), but it has also created an environment that helps the sector thrive. “Today, Luxembourg is a responsible international financial centre that has gathered expertise and experience from our banking sector, investment firms and sustainable finance initiatives to develop effective, inclusive financial tools for the benefit of vulnerable people. Collaboration is key to our approach. The House of Microfinance, where MiN is based, is a vibrant ecosystem where the private sector, NGOs and public sector advance inclusive finance.”

Weber also emphasised the role that inclusive insurance can play in providing a crucial safety net for the most vulnerable against threats such as climate change. Despite this, there are insufficient products available to tackle this and, when there are, there is very little uptake, even among subsidised products such as agricultural index insurance. One of the reasons for this could be the lack of trust towards the industry. As Weber highlighted, “Trust takes a long time to build, can be shattered quickly, and takes even longer to rebuild.” And much of this trust comes down to timely claims payments. To encourage people to pay their premiums, they need to believe that they will see the appropriate benefits if the time comes. 

To build trust and increase adoption of insurance in these communities requires innovative thinking. Even more so as increasing climate risks mean more financial institutions are withdrawing. 

Highlighting the main barriers to entry for insurance providers

Innovative solutions will be necessary to tackle some of the other key challenges that the industry faces. During the first workshop at the member’s meeting, Pranav Prashad, Senior Technical Officer at ILO's Social Finance and Impact Insurance Facility, and Microinsurance Network’s Africa Regional Coordinator Karimi Nthiga and Latin America and Caribbean Regional Manager Nicolas Morales, shared some of the main barriers to entry for organisations who are considering offering insurance. These were revealed as part of a study that they have conducted among 40 organisations over the last 18 months with support from the Generation Foundation. They identified five key barriers. 

• Low profitability and, specifically, the length of time it takes to reach profitability – around five years. This is because it takes time to develop partnerships with the relevant players in the network and build critical mass for products. During this period, it requires organisations to move resources away from more profitable parts of their business, to invest in an area with high operational costs that brings in comparatively small premiums. This makes it very challenging for small companies to get involved. 
• Distribution models also prove a challenge, particularly in finding ways to reach remote customers. This often requires an investment in technology, which is expensive, and time to build partnerships. In microinsurance, this can be quite complex as there are several players that need to be involved, including Insurtech companies, NGOs and aggregators and each will have different values and priorities.
• Regulation. In many countries, the regulatory framework doesn’t support the unique characteristics of microinsurance. This results in high compliance costs and strict supervisory requirements which removes any incentive to develop products in this area. And even in countries that do have specific microinsurance regulations, the submission processes are complex which means it can take up to six months to get an insurance product approved. And in countries without specific regulations, this can be perceived by insurance companies as a lack of government support for the sector.
• Technical capacity to effectively implement microinsurance projects is another barrier as many existing insurance companies lack the skills and experience needed to develop and manage relevant microinsurance products. In some cases, it is because there is little interest in this market and therefore insurers don’t see the need to upskill themselves. In other cases, companies are overconfident and believe their experience with traditional insurance can be translated directly to inclusive insurance. However, because they don’t fully understand the needs of these new customers, they often end up developing inadequate products and strategies.
• Customer characteristics. Potential microinsurance customers present characteristics that complicate market penetration, such as low financial education and distrust of insurance products. The need to educate consumers and build trust requires significant investment. Additionally, competition with informal insurance mechanisms and the difficulty of adapting products to diverse needs and languages in heterogeneous markets present further challenges. Barriers to digital access and the lack of specific understanding of market segments also limit the adoption of microinsurance​.

Following the presentations, our members were split into groups to discuss and share practical solutions to overcome these barriers. The group discussions were dynamic and collaborative, with participants exchanging innovative ideas and strategies tailored to their unique contexts. This interactive session not only fostered a deeper understanding of the challenges but also highlighted the collective expertise within our network, emphasising the importance of community and cooperation in driving the microinsurance industry forward. Tackling these challenges will be key to the growth of the industry.

Introducing microinsurance in the Philippines

And many of these challenges were faced by Lorenzo Chan himself when Pioneer Inc. first entered the microinsurance sector. During an interview conducted by Bert Opdebeeck, Founder of the Microinsurance Master, on Day 1 of the member’s meeting, he explained that while the company initially struggled in the mainstream insurance market, they saw an opportunity to help underserved people by developing microinsurance. Some of the biggest barriers they faced when looking into this area were overcoming the distrust that people had towards the traditional insurance industry, and tackling scepticism within his own company around the feasibility and profitability of microinsurance products. 

To tackle these challenges, the company partnered with Card MRI, the largest microinsurance institute in the Philippines, which has been recognised for its work in eradicating poverty. Together they were able to develop microinsurance products, including the Nanay programme. In Filipino, the word Nanay means “mother,” which reflects the aims of this initiative: to not only provide insurance to strong women, often the heads of households, but also to empower them by helping to tell their stories. The development of this product has been documented in a book, authored by CPMI founders — Dr. Aristotle Alip and Lorenzo Chan — together with Pia Yupangco.

And as the programme has become established, it has also been able to gain the trust of its customers. When natural disasters - such as Typhoon Haiyan - hit, Pioneer fulfilled its commitment to paying out claims despite the financial strain. This has added to its credibility. 

Pioneer and Card MRI now have a joint venture partnership – Card Pioneer Microinsurance (CPMI) - which takes a customer-centric approach to developing microinsurance products. That has been key to their success. 

Addressing key challenges together

Day 1 of the June Member’s Meeting really highlighted some of the key challenges the industry is facing, especially around financial viability and consumer trust. This was not only shown through extensive research done in the industry, but also through Chan’s own experiences of launching a microinsurance product in the Philippines. 

Despite these challenges, there are many companies who have been successful in developing inclusive insurance initiatives. It just takes some work, cross-industry collaboration and a bit of innovative thinking. This is something that was addressed on Day 2 of the conference and which we’ll cover in next month’s newsletter. 

We’d like to round off this month by thanking everyone who attended the meeting in June, in particular those who contributed to the programme on Day 1, including Paul Weber (Government of Luxembourg), Lorenzo Chan (Pioneer Inc.), Bert Opdebeeck (Microinsurance Master), Pranav Prashad (International Labour Organization), Karimi Nthiga (MiN), Nicolas Morales (MiN) and Sara Orozco (MiN).