Over the past several weeks, I’ve been examining a real-life example of how microinsurance responded when Typhoon Haiyan hit the Philippines. Today I’ll begin a discussion of how the microinsurance trend is expanding in both mature economies and the world’s developing markets, and why it’s a powerful growth tool for the insurance industry.
Traditional property & casualty and life & health insurance products and services have reached a saturation point in the world’s mature economies. Growth is flat, and insurers need to rely on niche markets and new revenue streams for any impressive growth.
It’s a different story in the developing world. Countries like Brazil, India, China and Africa are experiencing economic growth, and more of their low-income populations are recognizing the importance of insuring their crops, businesses, properties and lives. Microinsurance—in developed markets I would rather call it mass-market insurance, insurance for emerging consumers, or small-ticket insurance—fills the gap for people who want to protect what they have, no matter how small the Euro amount.
Microinsurance products are large-volume, small-premium, basic-benefit products delivered through alternative distribution channels such as retailers or mobile-phone service providers (or other affinity partners like banks, mortgage firms, and property owners). As we saw in the Philippines example, damages from a devastating natural catastrophe that at one time would have left the stricken with few financial resources to rebuild—without charitable or government intervention—were mitigated by the fact that many people had microinsurance to cover at least a portion of their losses.
But small-ticket insurance isn’t just for emerging markets. It’s also growing in mature markets, with the most popular products being extended warranties on household items, travel insurance, event cancellation insurance, pet insurance, and many more.
Small-ticket insurance is an innovation that enables insurance to expand its market and bring new customers into the fold.
Consider two areas of microinsurance growth in the developing world: Latin America and Africa. Accenture’s recent microinsurancesurvey found that some 5 percent (or 135 million people) of the consumers worldwide who fit the profile for microisurance have already bought some form of coverage. This leaves a potential global market of 3 to 4 billion policies worth $30 billion to $40 billion in annual premium revenue!
We’ve found that the growing demand for small-ticket insurance is being driven by four trends:
- Rising disposable incomes among lower- to middle-class consumers in emerging economies;
- Technological innovation;
- The growing importance of convergence and ecosystems; and
- Improvements in operating systems.
This revolution is made possible in large part by the speed of adoption of mobile phones in developing countries. This is important, as the lack of infrastructure in many of these areas would otherwise have made it difficult or impossible to deliver insurance services to people located in these remote areas.
Additionally, both governments and non-governmental organizations in most of these countries offer a range of incentives to encourage local and global insurers to extend their services to less affluent citizens. Organizations with the trust, networks and technology to reach large numbers of low-income consumers are leveraging their assets to partner with insurers that lack this access. This will go a long way to helping insurers develop efficient, scalable business models that unlock the potential of microinsurance.
Next time we’ll take a look at some of the insurance innovators in the microinsurance world and what they’re doing to increase this business segment.
For more information download the report: Big Opportunities in Small-Ticket Insurance