Microinsurance: Rising Star or Tough Sell in Emerging Markets?

A report released last month by the insurance company Swiss Re claims that there is a $40 billion market opportunity for targeting microinsurance to low-income people earning less than $4 a day in emerging markets. Microinsurance products can include life, health and weather insurance and feature lower premiums and coverage levels than traditional offerings. According to the report, the Asia-Pacific region is the largest and fastest-growing microinsurance market, though the segment is also growing in Africa and Latin America. Many companies are already in the process of extending insurance to low-income customers in both rural and urban areas. China Life Insurance Company has provided 4 million microinsurance policies covering approximately 8 million farmers, while Bradesco Seguros, the largest insurance provider in Latin America, hopes to add an additional 20 million new clients on the strength of its microinsurance products. Panama's Nacional de Seguros recently announced that it will be launching a number of microinsurance products in 2011, and Malayan Insurance is expanding its reach in microinsurance by partnering with other organizations to develop new insurance products for the poor in the Philippines. 

Microinsurance products can benefit low-income clients and insurers alike.  Poorer individuals targeted for microinsurance tend to by very risk averse. External shocks such as a death in the household or a drought can force them to sell off the few assets they have to stay afloat, stifle their future investments and ultimately cause them to fall even further into poverty. Microinsurance can help the poor guard against events that could otherwise wipe out their family's assets overnight. Meanwhile, microinsurance allows insurers to enter a new market and build a brand image, paving the way for microinsurance policyholders to become conventional insurance customers as their assets grow.

Despite these benefits, there are many challenges to making microinsurance profitable, including customer perception and price sensitivity. Low-income customers, who may not be aware of insurance or may perceive it as a luxury item, need to clearly understand the value added to their business or families before purchasing the insurance product. Conducting in-depth research can help insurance companies develop compelling products and messaging. Additionally, technology could be utilized to both educate customers and bring the products to market. Since the brick-and-mortar model is not always feasible for reaching poor, rural consumers, insurance providers would benefit from technology solutions that both market and sell policies, particularly as mobile payment systems develop.