Microinsurance, in a Rapidly Digitising World
Lloyds, the world's leading specialist in the Insurance market. Estimated the insurance opportunity in developing countries to be between 1.5 to 3 billion policies.
In 2017 according to the insurance information institute, there was a total of 280 million people with at least one microinsurance policy or 5% of the potential market. Premiums were valued at US$2.4bn. With annual growth rates of 10% or higher in some countries.
Lloyds estimates that there are 3 billion, low-income people across the world. With unmet demand for a range of microinsurance products from health and life, agricultural and property insurance to catastrophe cover.
Food Security and Micro Insurance
Insurance can play a critical role in addressing issues related to food security in regions of the world that are susceptible to weather-related risks.
Microinsurance is effective when, products, procedures and policies are simple, the premiums are low, the administration is efficient, and distribution channels are innovative.
The World Food Programme (WFP) aims to achieve Sustainable Development Goal 2 (SDG2) of zero hunger by collaborating with partners to test and scale innovative ways of providing rapid assistance to the poorest and most vulnerable after a catastrophic climate event.
One of the innovations currently deployed is Index insurance. The provision of insurance is distributed on a predetermined index.
For example, the levels of rainfall, for loss of assets and investment, primarily working capital, resulting from weather and catastrophic events.
This type of innovation in microinsurance reduces the levels of uncertainty farmers are exposed to and builds farmers resilience against climate shock or crop failure.
The disbursements (pay-outs) encourage farmers, to invest capital in more revenue-generating activities. Such as new agricultural technologies, seeds, and fertilisers.
The challenges experienced by consumers of insurance in the developing world. Is mirrored to a certain degree by SME's entrepreneurs in the developed and developing the world.
SME’s & Micro Insurance
There are approximately 24,530,050 SME’s in Europe, these organisations employ 142,697,824 people and generated €7,328.1 trillion in added value, according to data provided by Eurostat, National Statistical Offices, DIW Econ in 2017.
In the USA, 30 million SMEs account for nearly two-thirds of net new private sector jobs.
In emerging markets, the World Bank Group estimates that there are between 365-445 million MSMEs. 25-30 million are formal SMEs; 55-70 million are formal microenterprises; and 285-345 million are informal enterprises.
Presently only five of the top 10 insurers worldwide offer insurance products designed for SME’s. The gap in the provision of insurance cover that meets the needs of SME’s is more pronounced in developing countries.
Where SME’s account for only 18% of jobs and 16% of gross domestic product (GDP), compared to 57% of jobs and more than half of GDP in developed countries.
The challenge for organisations incumbent in this space or start-ups entering into this market. Is their ability to develop products and platforms that close the gap between the type of insurance on offer and the real risks SME’s face.
The complexity in providing insurance to SME's is linked to the level of variability in the requirements of SME's.
And the asymmetry of information available on SME’s and consumers by insurance organisations to effectively access risk at scale.
One way of mitigating this is through the unbundling of insurance products. This will enable SME’s to select elements of a suite of insurance solutions, that are tailored to their needs.
Another method deployed by finance platforms in Asia is consumption scenario based finance.
Typical Expenditure of Small Farm Holders & Access to Finance in Africa.
Barriers to Adoption of Insurance Products in the Developing World
This will require insurers to segment consumers on their behaviours, hence the need to master the capture and analysis of data across the network of their relationships.
According to Mckinsey digital platforms such as (Facebook) and ecosystems like (Lyft, Uber, Didi, &AirBnb) will define competition in a digital data-driven world.
In Asia, finance platforms, deploy scenario-based finance to effectively assess risk.
Consumption Scenario Based Finance
This essentially is a measure of all the activities that consumers frequently engage in. Such, as gaming, online shopping, medical services, financial services, social welfare, dining, and mobile services.
Data from these scenarios contribute to effective risk screening. Online finance platforms in Asia, deploy historical and real-time data captured across. Social platforms, commercial enterprises and shopping to determine the types of financial products to offer SME's and consumers.
Drivers of Innovation in the Provision of Insurance to SME’s
In order to compete insurance firms must digitise their business models, enter into partnerships and leverage data to drive the development of new platforms, ecosystems and products.
Drivers of innovation in the provision of insurance and other financial services include;
Mobile Technology: as mobile devices become ubiquitous, the ability of an organisation to deploy digital products at scale, anytime, anywhere to meets the needs of SME's and consumers improve substantially.
Cloud Computing: reduces the cost of inclusiveness, though driving efficiency into the process of controlling risk.
Big Data: As an enabler of risk assessment.
BioMetrics: Bio identification is used to identify targets with greater reliability.
Regulatory Compliance: Verifiable identification, investor suitability, information disclosure, risk management and anti-money laundering
Innovation in Other Sectors: the ability of insurance firms to partner with innovative organisations incumbent in other sectors.
For example, organisations that offer wearables in the health sector and telematic devices in the automotive industry for the monitoring of traffic patterns. Are just some of the examples of how data is changing the way business is conducted across a plethora of industries.