Microinsurance provides opportunities for all

Microinsurance, insurance for low income individuals, can play an important role in helping communities in developing countries mitigate and adapt to climate change, and to provide the security needed to develop long term sustainability projects, according to Lloyd’s, the world’s largest specialist insurance.

In a new report produced by Lloyd’s 360 Risk Insight and the Microinsurance Centre, Insurance in developing countries: exploring microinsurance and other commercial opportunities, the size of the potential market is estimated to be between 1.5 and 3 billion policies, with significant demand for a range of products, including health, life, agricultural and property insurance. Over 135 million people are currently covered with microinsurance which around 5 % of the potential market. Annual growth rates are currently over 10%.

Launching the report, Lloyd’s Finance Director, Luke Savage, said:

“Bringing insurance to three billion low income individuals is a real opportunity to reduce poverty and give individuals the ability to invest in sustainable projects without the fear of loss from natural catastrophes or other destructive forces.

““But it is not a one way trade. There are benefits for commercial insurers too, which include larger and diversified risk pools, first mover advantage into new markets, market intelligence and innovations that can be applied to other business activities,” he said.

The demand for microinsurance is set to rise on the back of the global recession, with 50-90 million people predicted to be plunged back in to poverty over 2009.

While recessionary pressures will influence the amount seeking microinsurance, the policies and business itself will be further shaped by numerous variables, including: economic growth; urbanisation; financial sector development; climate change; and information technology.

Mr Savage pointed out that the partnership between business and government in this field is not new, highlighting the success of government subsidised schemes.

The report looks at the role of regulation in building and improving the provision of microinsurance, including:

- Responding to the implications of limited data and information on policyholders and different risk structures.

- Ensuring that products are appropriate to the needs of low-income consumers in terms of coverage, structure and even language.
- Recognition and if necessary regulation of fast and cost-effective settlement mechanisms, which may include simpler documentation requirements and claims handling by the distribution channel