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Michael J. McCord MicroInsurance Centre 2 9 September, 2013

The Landscape of Microinsurance in LAC: Gaps and Opportunities Microinsurance Forito XVI Inter-American Forum on Microenterprise – Foromic 2013. Michael J. McCord MicroInsurance Centre 2 9 September, 2013. 7.6% of the region’s population is covered by microinsurance.

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Michael J. McCord MicroInsurance Centre 2 9 September, 2013

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  1. The Landscape of Microinsurance in LAC: Gaps and OpportunitiesMicroinsurance ForitoXVI Inter-American Forum on Microenterprise – Foromic 2013 Michael J. McCord MicroInsurance Centre 29 September, 2013

  2. 7.6% of the region’s population is covered by microinsurance 7.8% without Brazil and Mexico 2.6% without top five (JM, PE, EC, CO, MX) Microinsurance in LAC However, this is primarily by low-value life and personal accident products No. Insured, MM Coverage ratio  Need to expand beyond basic products and increase volume of people covered Market could be over 300 million covered with premiums of over USD 6 billion.

  3. 2 questions: What gaps in microinsurance development do we see? What opportunities are there for addressing them? Start by identifying various market types…

  4. Country allocation by market typology Criteria: macroeconomic, commercial, development, other market issues

  5. Characteristics • MI just starting/about to start • Few insurers, maybe one basic product • Often small population Gaps • Know-how • Product development • Actuarial analysis • Voluntary sales • Regulatory support • Working with non-MFI channels • IT, especially back office • Consumer protection

  6. Recommendations • Regulation: • Proportional supervision • Distribution • Enhance capacity • Meso level: • Technical assistance capacity building • Sharing lessons • Micro level / private goods: • Paradigm shift facilitation • Institutional structuring for MI

  7. The Case of Costa Rica • Characteristics: • Insurance was state-controlled monopoly until 2008 • First private insurers began sales in 2010 • No MI identified yet • Gaps: • Lack of distribution channels (MFIs reach only 25,000) • Lack of insurer motivation or capacity for microinsurance • Lack of client demand and knowledge

  8. Recommendations/Opportunities – Costa Rica • Regulation: • Learning from other jurisdictions • Distribution • MFI network is looking to partner w/ an insurance broker; pilot in progress • Need creativity in distribution, as MFI outreach is low • Meso level: • Leverage REDCAMIF regional network • Micro level / private goods: • Niche markets: microentrepreneurs and Nicaraguan immigrants • Overcome the ‘brand’ of the state-run company

  9. Characteristics • MI market is driven by MFIs • Limited growth from other distribution channels Gaps • Voluntary sales • Back office and IT capacity • Brokers and intermediaries • Cost accounting and controls • Health covers • Ag covers • Claims assessment technologies • Consumer protection

  10. Recommendations • Regulation: • Assess structures in relation to IAIS paper on inclusive insurance • Proportional supervision • Consumer protection strategies • Reduce/eliminate taxes • Distribution • Coordinate with other regulatory bodies regarding new distribution channels (e.g. mobile service providers) • Enhance capacity of distributors • Micro level / private goods: • Help institutions understand cost structures • Institutional structuring for MI • Paradigm shift facilitation • Meso level: • Capacity building of insurance associations and their institutes • Insurance training institutions • Actuaries and risk tables • Technical assistance capacity building • Develop IT systems • Sharing lessons

  11. The Case of - Bolivia • Characteristics: • Vibrant microfinance market • Regulatory requirements of credit market help drive microinsurance • Sophisticated market in terms of risks covered, accessibility, and simplicity • Reasonable MFI commissions (12-18%) • Client protection has evolved 7.23% MI coverage ratio • Gaps: • Distribution is concentrated in MFIs, credit-linked products • Lack of affordability for more complex products • Lack of client knowledge/demand outside of MFI network

  12. Recommendations -Bolivia • Regulation: • Clarify distribution requirements to facilitate alternative distribution • Consider incentives to expand MI market • Distribution • Identify and build capacity of alternative distribution channels • Understand costing • Meso level: • Market education • Insurance association to take a larger role in MI advocacy • Micro level: • Improve capacity of insurers to respond to market needs • Understand costing and risk to improve pricing

  13. Characteristics • Robust middle class • Distinction between traditional insurance and microinsurance is ambiguous • Reaches large numbers of people, but with basic products, some with questionable value Gaps • Consumer protection • Regulatory support • Regulatory requirements – policy content • Linkages with mission-led institutions • IT/Back office efficiencies • Cost accounting and controls • Health and ag covers

  14. Recommendations • Regulation: • Assess structures in relation to IAIS paper on inclusive insurance • Proportional supervision • Consumer protection strategies • Reduce/eliminate taxes • Distribution • Clarify legal structures for distribution • Coordinate with other regulatory bodies regarding new distribution channels (e.g. mobile service providers) • Enhance capacity of distributors • Meso level: • Capacity building of insurance associations and their institutes • Insurance training institutions • Actuaries and risk tables • Technical assistance capacity building • Develop IT systems • Sharing lessons • Micro level / private goods: • Help institutions understand cost structures

  15. The Case of - Brazil • Gaps: • Limited distribution to poorest populations and rural areas • Little effort made to track product value or social performance • Characteristics: • “Popular” or “mass market” insurance provided mainly by formal commercial insurers • Regulators recently developed “8 Circulares” that address mi • Significant R&D initiatives inform insurers 5.36% mi coverage ratio

  16. Recommendations –Brazil • Regulation: • Circular implementation • Careful consumer protection • Distribution • Improvement in coverage through MFI/banking agencies • Meso level: • Facilitation of technology to improve efficiencies • Expansion to rural areas • Enhance linkages with government programs and others that currently reach rural areas • Micro level / private goods: • Development of innovative, market-responsive products

  17. Characteristics • Robust and rapidly-growing middle class • Both strong in microfinance and have many “alternate” delivery channels • Multiple strong insurers and channels competing for mi business Gaps • Consumer protection • Regulatory support • Cost accounting and controls • IT • Health and ag covers

  18. Recommendations • Regulation: • Assess structures in relation to IAIS paper on inclusive insurance • Proportional supervision • Consumer protection strategies • Reduce/eliminate taxes • Distribution • Clarify legal structures for distribution • Coordinate with other regulatory bodies regarding new distribution channels (e.g. mobile service providers) • Meso level: • Capacity building of insurance associations and their institutes • Actuaries and risk tables • Sharing lessons • Market education: • Develop for specific needs of each market • Monitor effectiveness of market education efforts

  19. The Case of - Colombia • Characteristics: • Vibrant, commercially sustainable market • 25 insurers report MI to FASECOLDA • FASECOLDA provides market education, capacity building, data collection, representation • Exploring alternative channels due to growing cost of distribution through MFIs and utilities • Competition creates tension between profitability and value for clients 17.23% mi coverage ratio • Gaps: • 2 major channels (MFIs and utilities) are nearly tapped out • High commissions erode value • Lack of high value products and high value innovation

  20. Recommendations –Colombia • Regulation: • Consider impact on MI implications in decision making (ex. In-kind funeral) • Distribution • Take advantage of existing infrastructure such as call centers • Meso level: • Continue to leverage efforts of and share lessons from FASECOLDA • Micro/institutional level: • Shift focus to long-term thinking • Agriculture insurance

  21. Opportunities/Recommendations • Further MI development will require both public and private goods • Focusing on the gaps identified for each of the market typologies will have the greatest effect • Key areas for action: • Legal framework • Distribution • Market education • Meso level capacity / infrastructure • Micro / institutional level capacity

  22. Microinsurance in Latin America and the Caribbean – the Way Forward • Focus interventions on the Credit-led and Mass market-led country types • Let early microinsurance champions begin to develop and show commitment in Frontier countries before significant interventions are undertaken • Hybrid countries need less intervention but can provide lessons and experience to the rest of the region Growth will continue in the region, but without key interventions, it will continue on the same trajectory of basic products and a push to mass market

  23. The MicroInsurance Centre“Developing partnerships to insure the world’s poor” www.MicroInsuranceCentre.org mjmccord@MicroInsuranceCentre.org

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