Insurance in Developing Countries: Exploring Opportunities in Microinsurance

Exploring the positives and negatives of offering Microinsurance. The potential market for insurance in developing economies is estimated to be between 1.5 and 3 billion policies. There is significant demand for a range of insurance products from health and life, agricultural and property insurance, to catastrophe cover.

• Besides profits, there are several other benefits for commercial insurers providing microinsurance: a larger and diversified risk pool, benefits to reputation, and market intelligence and innovation that can be applied to other business activities.
• The success of microcredit worldwide has shown that people with low incomes are a proven market for financial services and are effective consumers if given appropriate products, processes, and knowledge.
• Microinsurance already covers around 135 million people, or around 5% of the potential market.
• Microinsurance is effective even in markets with little experience of insurance, as long as products, procedures and policies are simple, the premiums are low, the administration is efficient, and distribution channels are innovative.
• The main suppliers of microinsurance are commercial insurers. Most international insurers and reinsurers are involved in microinsurance initiatives or offer products directly. At the same time, international organisations, donors, nongovernmental organisations (NGOs) and governments are important facilitators.
• Community-based and informal insurance schemes will prove valuable sources of innovation, but it is likely that, as communities develop, opportunities for regulated insurers with appropriate products and processes will increase and these insurers will become market leaders.