FINANCIAL INCLUSION IN INSURANCE
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FINANCIAL INCLUSION IN INSURANCE
Financial inclusion
in insurance
Microinsurance
for inclusionThis study has been prepared by MAPFRE Economics.
The information contained in this study may be reproduced
in part, provided the source is cited.
Cite as:
MAPFRE Economics (2020), Financial inclusion in insurance, Madrid, MAPFRE Economics.
© Cover image: iStock
© Text and publication:
MAPFRE Economics - mapfre.economics@mapfre.com
Spain: Carretera de Pozuelo, 52 – Edificio 1
28222 (Majadahonda) Madrid
Mexico: Avenida Revolución, 507
Col. San Pedro de los Pinos
03800 Benito Juárez, Mexico City
June 2020.MAPFRE Economics
Manuel Aguilera Verduzco
General Director
avmanue@mapfre.com
Ricardo González García
Director of Analysis, Sectorial Research and Regulation
ggricar@mapfre.com
Gonzalo de Cadenas Santiago
Director of Macroeconomics and Financial Analysis
gcaden1@mapfre.com
José Brito Correia
jbrito@mapfre.com
Begoña González García
bgonza2@mapfre.com
Isabel Carrasco Carrascal
icarra@mapfre.com
Fernando Mateo Calle
macafee@mapfre.com
Rafael Izquierdo Carrasco
rafaizq@mapfre.com
Eduardo García Castro
gcedua1@mapfre.com
Maximilian Antonio Bruno Horn
Verónica Martínez Vera
Almudena Aramburu González
José Luis Pozo Estudillo
Miguel Ángel Martínez Roa
Óscar García GarcíaContents
Presentation ....................................................................................... 9
Executive summary............................................................................ 11
1. Financial inclusion in insurance: fundamentals ........................ 13
1.1 Mass-market insurance, inclusive insurance,
and microinsurance .......................................................... 14
1.2 Microinsurance and the barriers to financial inclusion ... 15
1.3 Global outlook of financial inclusion
and microinsurance .......................................................... 17
1.4 The role of new technologies ............................................ 20
1.5 Insurtech inclusion initiatives ............................................ 21
2. Microinsurance products ............................................................. 23
2.1 Type of products ................................................................ 23
2.2 Product features ................................................................ 24
3. Review of relevant markets ......................................................... 27
3.1 Asia .................................................................................... 27
3.2 Africa ................................................................................. 28
3.3 Mexico ................................................................................ 30
3.4 Central America ................................................................ 31
3.5 Colombia............................................................................ 32
3.6 Brazil ................................................................................. 33
3.7 Peru ................................................................................... 35
3.8 Argentina ........................................................................... 37
3.8 Other Latin American markets ......................................... 37
4. Regulatory aspects ...................................................................... 41
5. Conclusions .................................................................................. 43
7References .......................................................................................... 45
Bibliographic references ................................................................... 47
Index of charts and tables ................................................................. 51
8Presentation
Insurance is a financial instrument that, through risk pooling and loss compensation, contributes to
the continuity of the economic process and the consolidation of capital. To this extent, greater
expansion of insurance activity in the economy is a prerequisite for the increased efficiency of its
performance, which will help support a sustained path of growth.
However, insurance is also a mechanism that can facilitate social mobility by allowing individuals and
families to overcome shocks that, over the course of their lives, can affect their wealth and future
income-generating capacities. In the absence of mechanisms that, like insurance, allow for these
risks to be transferred, individual or family progress can be lost to certain adverse events. Thus, the
possibility of accessing insurance products and services may be the difference between individuals or
families achieving the goal of social mobility, or remaining in a situation of economic vulnerability.
In this way, the search for mechanisms that allow the population—particularly the lower-income
segment—access to mechanisms to transfer the risks they face and compensate losses arising from
the materialization of said risks, is an essential part of public policies geared toward improving the
material living conditions of these people. Thus, the purpose of this report is to present a conceptual
and international analysis of how microinsurance can contribute to the objective of financial inclusion
and therefore to increasing opportunities for a very broad segment of society to have access to
higher levels of well-being.
MAPFRE Economics
FINANCIAL INCLUSION IN INSURANCE 9Executive summary
The concept of financial inclusion is the process From the analysis conducted in this report, it
through which a society has access to different can be inferred that the future viability of mi-
financial services (credit, savings, insurance, croinsurance will depend largely on its ability to
payment and pension services), as well as fi- be supported by modern technological bases.
nancial education mechanisms, with the goal of Otherwise, most of the premium would need to
improving its material conditions of well-being. be allocated to covering administration expens-
In the case of insurance activity, financial inclu- es, distribution costs, and prudential margins,
sion focuses on allowing lower-income groups which would only allocate a very small percent-
of society to gain access to the products that age of the premium to paying claims. This
enable them to protect their life, health and would prevent the insurance from fulfilling its
assets, through the savings and loss compen- risk mutualization and/or savings generation
sation processes which are an inherent part of function; it would therefore not create value for
insurance products. microinsurance policyholders.
The process of financial inclusion in insurance This report also highlights that IT platforms
has been implemented, in general, through designed for the production and distribution of
three types of products: "group insurance," "in- standardized mass-market products can sup-
clusive insurance," and "microinsurance." At port the viability of microinsurance. The aim is
the beginning of the 1990s, "microinsurance" to take advantage of these technological plat-
began to be considered as a potential tool with- forms as much as possible in order to incorpo-
in the framework of different public programs rate products into the offering with more suit-
and international bodies, as it tries to help im- able coverage for the low-income population,
prove the living conditions of the low-income seeking the economies of scale that will allow
groups to which it is geared. Without a doubt, these policies to be issued at a reasonable cost.
"microinsurance" is a tool that can be used to The significant development of these web plat-
protect the most economically vulnerable popu- forms or cellphone applications for financial
lations from unexpected costs due to the occur- services can considerably facilitate the distribu-
rence of an event which is able to be mutualized tion of microinsurance.
through insurance techniques. The fact that
these institutions have included it as part of One notable case is the public initiative
their agendas is increasing pressure on insur- launched in India. In this market, microinsur-
ance companies to include it in their product ance is sold through IT platforms called "Com-
offering. mon Service Centers" (CSC), where financial
services and other public and private services
In particular, two main factors can be identified are also offered. The goal of these platforms
that have influenced the development of mi- (which make up the "CSC Network") is to en-
croinsurance globally in recent years. The first sure reduced operating costs, transparent digi-
is the willingness of public authorities to stimu- tal processes, and easy accessibility to products
late its growth as part of the design of specifi- and services, even in rural areas. Likewise,
cally created public policies; and the second is these new technologies can be extremely useful
technology, which can facilitate access to a for segmenting clients through the data they
broad group of potential policyholders (even in provide; facilitating the digital identification of
rural areas) at a reasonable cost. policyholders; receiving, managing and paying
claims (including automatic compensation
FINANCIAL INCLUSION IN INSURANCE 11FINANCIAL INCLUSION IN INSURANCE
based on indices); analyzing information; de- insurance, property insurance, and agricultural
tecting fraud; and preventing and mitigating insurance can also be found, as well as health
risks, among other things. microinsurance—one of the insurance prod-
ucts with the highest demand among low-in-
This report analyzes the main markets of Asia, come families, but also with the lowest levels
Africa, Latin America and the Caribbean, which of penetration and highest levels of complexity
have large middle-to-low income populations— in terms of its implementation.
the target group of microinsurance. The analy-
sis indicates that the environment for financial Finally, the study delves into the public policy
inclusion is improving at a global level, with measures that could be adopted, both from a
Latin America leading the way in infrastructure supply and demand point of view, in order to
and regulation. Colombia, Peru, Uruguay, Mex- promote financial inclusion through microin-
ico and India are some of the most advanced surance, breaking down the barriers that curb
countries. However, even in these countries, its development.
there is still a long way to go.
As for the segment of insurance markets rele-
vant for this report, temporary term Life insur-
ance is currently dominant in the microinsur-
ance market. However, versions of Life savings
121. Financial inclusion in insurance: fundamentals
In general, the concept of financial inclusion families can be suddenly lost due to the
is the process through which a society has materialization of certain risks that affect
access to different financial services (credit, their life or wealth. Thus, in the long-term,
savings, insurance, payment and pension ser- the possibility of accessing insurance
vices), as well as financial education mecha- products and services may be the difference
nisms, with the goal of improving its material between families achieving the goal of social
conditions of well-being. In the case of insur- mobility, or remaining in a situation of
ance activity, financial inclusion focuses on economic and social vulnerability (see
allowing lower-income groups of society to Chart 1).
gain access to the products that enable them
to protect their life, health and assets, In this way, as it is found to be closely tied to
through the savings and loss compensation patterns of economic and social inequality,
processes which are an inherent part of in- the challenge of expanding financial inclusion
surance products. involves both the design and implementation
of public policies and progress in the design
On the journey of the lowest-income individu- of insurance products, in such a way that
als and families, who seek to emerge from there is increased penetration of the insur-
poverty and who move beyond the safety nets ance mechanism in the economy and, there-
provided by social government policies, they fore, in levels of well-being. For this reason,
may encounter shocks that affect their wealth the means by which this process of financial
and income-generating capacities. In the ab- inclusion in insurance can be carried out are
sence of mechanisms such as insurance, connected to the ways access is provided to
which allow for these risks to be transferred specific groups, especially those at the bot-
and the respective losses to be compensated, tom of the population pyramid.
progress made by these individuals or
Chart 1
Effect of risk materialization on the path of low-income
populations to improving well-being
Middle and high income Shocks from the
materialization of risks
With options to
Middle-to-low income transfer risks
Vulnerable population
Poverty line
t
Moderate poverty
Safety net of
social policies
Extreme poverty
Without options to
transfer risks
Absolute poverty
Source: MAPFRE Economics, from Monique Cohen and Jennefer Sebstad, "Reducing vulnerability: the demand for microinsurance,"
Journal of International Development (2005)
FINANCIAL INCLUSION IN INSURANCE 13FINANCIAL INCLUSION IN INSURANCE
1.1 Mass-market insurance, Until now, "microinsurance" was not normally
inclusive insurance, and part of the business models of most tradi-
tional insurance companies. The main reason
microinsurance
seemed to have to do with the fact that it was
unattractive as a potential market, given its
In recent years, one of the tools that has been poor profitability, the non-traditional distribu-
associated with the process of financial inclu- tion mechanisms, and the difficulties in esti-
sion in insurance is microinsurance. The term mating its demand. However, two factors
"microinsurance" is used to refer to insur- seem to have influenced the development of
ance for low-income populations, which may microinsurance in recent years. The first is
fall within a broader category called "inclu- the willingness of public authorities to stimu-
sive insurance" — insurance intended for late its growth as part of the design of specif-
groups generally excluded or under-served by ically created public policies; and the second
the insurance market (see Chart 1.1). is technology, which can facilitate access to a
broad group of potential policyholders (even
By contrast, "mass-market insurance" en- in rural areas) at a reasonable cost.
compasses products designed for sale
through far-reaching distribution channels, in At the beginning of the 1990s, "microinsur-
terms of the target population, and standard- ance" began to be considered as a potential
ized products that are easily understandable tool within the framework of different public
by their target audience. For example, health programs and international bodies, as it tries
insurance designed for distribution through to help improve the living conditions of the
electronic markets in the United States low-income groups to which it is geared.
(known as "exchanges") can be considered Without a doubt, "microinsurance" is a tool
"mass-market insurance." Therefore, it is a that can be used to protect the most econom-
much broader universe than that of "inclusive ically vulnerable populations, small busi-
insurance" and "microinsurance." However, it nesses, farmers, stockbreeders, and compa-
is important to note that some of the features nies from unexpected costs due to the occur-
of "mass-market insurance," such as sim- rence of an event which is able to be mutual-
plicity and easy distribution, are completely ized through insurance techniques. In this
usable by "microinsurance." regard, the fact that these institutions have
included it as part of their agendas is
Chart 1.1
Taxonomy of mass-market and inclusive insurance
Mass-market
insurance
Inclusive
insurance
Excluded and
under-served
groups
All socio-economic
groups
Low-
income
groups
Microinsurance
Source: MAPFRE Economics (with data from IAIS and ASSAL)
14FINANCIAL INCLUSION IN INSURANCE
increasing pressure on insurance companies mass-selling mechanisms ("mass-market
to include it in their product offering1. insurance"), geared toward various portions
of the population.
Through "microinsurance," insurance tech-
niques allow protection to be offered to these Because of its features, "inclusive insurance"
vulnerable groups against risks of death, ac- is one of the main tools for bridging the In-
cidents, illness, damage to assets, or even surance Protection Gap (IPG) in emerging
catastrophic risks, with the coverage and economies, as it acts in two ways. In the
costs suited to their economic circumstances. short-term, it raises demand for insurance by
The typical coverage offered by "microinsur- bringing new segments of the population
ance" is usually associated with high-impact (whether excluded or under-served) within
and low-frequency risks. In this way, "mi- the system of protection and compensation
croinsurance," combined with other social provided by insurance. Meanwhile, on a more
and financial government policies, can sup- mid- to long-term horizon, inclusive insur-
port these population segments faced with ance is also a means of financial education
the occurrence of these types of events, pre- that will advance the social and economic
venting these shocks from causing setbacks development of the population and ultimately
on these families' paths to increasing their increase demand for insurance.
income levels.
However, financial inclusion in insurance
Within the low-income population, there is a faces several barriers. These obstacles can
segment that lends its services through for- be classified, for analytical purposes, into two
mal labor contracts; therefore, there is usu- categories: those that have to do with limita-
ally a mandatory social security system that tions affecting insurance demand, and those
covers accidents, disability and death. For which concern aspects related to the supply
this reason, "microinsurance" has most po- of insurance services (see Chart 1.2-a).
tential when geared toward low-income pop-
ulations belonging to the informal economy Demand-related barriers
who, in emerging countries, tend to be con-
sidered a target group for "microinsurance" On the demand side, there are three main
programs. Most of the time, the most vulner- obstacles that must be addressed in order to
able groups are found in rural areas, which achieve greater financial inclusion in insur-
makes access to traditional insurance distri- ance: (i) the low income level of the target
bution channels difficult, as they tend to fo- population; (ii) the seasonality of available
cus on urban areas as a matter of cost effi- income, and (iii) the low level of financial ed-
ciency. However, new digital distribution ucation.
channels are helping to break down this bar-
rier.
The first of these obstacles has to do with the
low income level of the target population, par-
1.2 Microinsurance and the barriers ticularly in the case of the excluded segment,
to financial inclusion which represents one of the biggest chal-
lenges in bridging the insurance gap. So long
As indicated before, financial inclusion in in- as families' available income is insufficient to
surance focuses on establishing policies and adequately cover basic needs, it will be diffi-
mechanisms that expand insurance access, cult for them to afford financial protection
which offers protection and compensation products.
against basic risks (life, health, accidents,
property and liability), to groups excluded The second aspect has to do with the seasonal
from or under-served by society. Gearing its nature of available income. Groups excluded
policies toward both excluded and under- from insurance protection in emerging mar-
served populations, inclusive insurance en- kets, due to their link to the labor markets
compasses not only microinsurance (tradi- and the type of economic activity they carry
tionally intended for low-income groups), but out, typically receive income on a highly sea-
also a segment of insurance offered through sonal basis, which has implications for the
15FINANCIAL INCLUSION IN INSURANCE
Chart 1.2-a
Barriers to financial inclusion in insurance
Supply-related
Demand-related
Unsuitable
business models
Low income
level Product
design
! Income Distribution
seasonality mechanisms
Low level of Regulatory
financial education aspects
Source: MAPFRE Economics
traditional insurance business models, par- Firstly, unsuitable business models prevent
ticularly regarding the premium payment effective access to target populations. Busi-
mechanism. ness models (for traditional commercial in-
surers, mutuals and cooperatives, and even
And finally, the last demand-related factor is micro-insurers and new participants in insur-
the low level of financial education among tar- ance markets) need to adapt to the specific
get population groups, which implies a lack of conditions of markets where they want to ex-
awareness of the need to have protection pand levels of inclusion.
against the effects of risk materialization,
and of how these can affect the path to im- Even though this suitability must comply with
proving personal and household well-being. the particular conditions of each market, as
well as the specific strategy of the companies
As indicated above, demand-related factors that hope to address these markets, there
are structural, associated with a country's seems to be a set of basic aspects to
pace of economic growth, with its income dis- consider:
tribution structure, and with matters related
to the lack of in-depth formal education (i) The individual profile of the client (low
mechanisms in emerging economies. level of available income, low level of
awareness regarding the risks they face
Supply-related barriers and how to protect themselves against
them, the nature of their consumption
On the other hand, there are four relevant expenses, location difficulties, informal
elements to consider in terms of supply-re- work schemes, irregular income sources,
lated obstacles in order to progress more etc.), which differs from traditional con-
quickly in insurance-related financial inclu- sumers that are already served by the
sion processes within emerging markets: (i) insurance industry.
unsuitable business models; (ii) prevailing
characteristics in the design of insurance (ii) The need to use non-traditional distribu-
products; (iii) the need for new distribution tion channels.
mechanisms, and (iv) regulatory aspects.
16FINANCIAL INCLUSION IN INSURANCE
(iii) The particularities of the inclusive insur-
Chart 1.2-b
ance product cycle, which differs from Inclusive insurance product cycle
traditional products.
(iv) The need for the intensive use of tech- Product design
nology and digitization as ways to cut op-
erating and transaction costs. Complaints Distribution
payment mechanisms
The second supply-related obstacle has to do
with the prevailing characteristics of the insur-
ance product design process. Like in the previ-
ous case, the design of the "inclusive insur- Evaluation of Underwriting
complaints process
ance" product should consider certain special
characteristics that do not necessarily exist in
the design process of traditional value propo- Payment of
premiums
sitions (see Chart 1.2-b). In this regard, "in-
clusive insurance" products require special
Source: MAPFRE Economics
treatment, which includes, among other
things:
as the introduction of digital channels) has
(i) a complex rate establishment process (due had the effect of reinforcing the multi-chan-
to a lack of sufficient information to nel concept.
measure the risks of the target population);
In terms of "inclusive insurance," it seems
(ii) the determination of well-defined and necessary to go even further. The multi-
limited coverage, as well as a reduction channel concept should be expanded with
of the number and type of product other distribution methods (use of micro-fi-
exclusions (this allows for simplification nance institutions, cooperatives, rural sav-
and deals with the issue of low financial ings banks, pawnshops or pawnbrokers,
education); banking and non-banking correspondents,
agreements with client service providers,
(iii) flexible premium-payment mechanisms NGOs, public utility companies such as gas
(to deal with the issue of seasonal avail- and electricity, among others) that better suit
able income), and the conditions of the target population. All of
this seeks to reduce transaction costs and
allows "inclusive insurance" products to be
(iv) the establishment of simple, fast pro-
affordable for the target population.
cesses for the payment of indemnifica-
tion derived from the product. Innovation
plays a crucial role in the design of inclu- Lastly, within the framework of the design
sive insurance products, as these are and implementation of public policies, regula-
products that cannot necessarily be tory aspects are particularly relevant when
adapted from traditional products; encouraging financial inclusion in insurance.
rather, they require new formulas suit- This aspect is addressed specifically in sec-
able for a target population with different tion 4 of this report.
features.
1.3 Global outlook of financial
Thirdly, greater financial inclusion requires inclusion and microinsurance
new distribution mechanisms. Until quite re-
cently, the distribution channels used by the The World Bank's data on financial inclusion,
insurance industry were rather traditional through the Global Findex Database2, can
(agents and brokers). Recently, however, the serve as an indicator of a country's develop-
incorporation of other channels (bancassur- ment potential in terms of financial inclusion,
ance, agreements with commercial entities under the rationale that this potential in-
and non-financial service providers, as well creases insofar as the level of income is
17FINANCIAL INCLUSION IN INSURANCE
lower. Chart 1.3-a shows, in yellow and With regard to microinsurance, at the mo-
green, middle and low income countries, ment there are significant constraints con-
following the World Bank's classification. cerning the information that can be obtained
These countries, which make up the majority on the current global situation. In general,
of the world's population and land, are the financial and statistical information pub-
reference markets with the highest potential lished by regulatory and supervisory bodies
for the development of "inclusive insurance." does not consider the identification of these
types of products.
In terms of inclusion, it is worth noting the
investigation work carried out by "The Econ- Nevertheless, with these limitations, a more
omist Intelligence Unit," with the support, complete current outlook on the state of the
among other institutions, of the Inter-Ameri- population's coverage through this type of
can Development Bank's (IADB) innovation insurance is offered and updated by the Mu-
lab and investment corporation. This analysis nich Re Foundation and the Microinsurance
unit publishes an annual report with indica- Network, which is the most extensive private
tors to assess the environment for financial network in terms of the number of its mem-
inclusion in more than fifty countries, creat- bers and their dedication to the awareness
ing an index that takes five aspects into con- and promotion of microinsurance, offering a
sideration: (i) the government and support of common view of the majority of the initiatives
policies; (ii) stability and integrity; (iii) prod- being developed in this field4. Another orga-
ucts and points of sale; (iv) consumer protec- nization is also worth highlighting: the Mi-
tion, and (v) infrastructure3. The 2019 report croinsurance Centre (Milliman Research),
concludes that the global environment for which dedicates substantial efforts to study-
financial inclusion is improving, with Latin ing more than 100 poor countries across the
America being the leading region for financial world with low-income inhabitants. Through
inclusion in terms of infrastructure and regu- this study, it has determined that only ap-
lation. Among the first five countries of its proximately 3% of these people currently
ranking, there are four Latin American coun- have access to “microinsurance"5.
tries (Colombia is number one, followed by
Peru, Uruguay and Mexico); India comes in at
fifth (see Table 1.3 and Chart 1.3-b).
Chart 1.3-a
Financial inclusion development potential based on income level
Low-income countries (greatest potential)
Middle-income countries
High-income countries (least potential)
Source: MAPFRE Economics (with data from the World Bank)
18FINANCIAL INCLUSION IN INSURANCE
Table 1.3
Ranking of financial inclusion environment: global microscope 2019
Ranking Country Score Ranking Country Score
1 Colombia 82 29 Cameroon 51
2 Peru 80 29 Egypt 51
3 Uruguay 76 29 Morocco 51
4 Mexico 74 32 Trinidad and Tobago 50
5 India 71 33 Turkey 49
5 Philippines 71 33 Vietnam 49
7 Argentina 70 35 Ghana 48
7 Indonesia 70 35 Jamaica 48
9 Brazil 69 37 Senegal 47
10 Rwanda 68 38 Nicaragua 45
11 Chile 65 39 Nepal 44
11 China 65 40 Madagascar 43
13 El Salvador 63 40 Nigeria 43
13 South Africa 63 42 Sri Lanka 42
15 Tanzania 62 43 Guatemala 41
16 Paraguay 61 44 Lebanon 40
17 Costa Rica 58 45 Ethiopia 39
18 Bolivia 57 46 Bangladesh 38
19 Panama 56 47 Cambodia 37
19 Russia 56 47 Uganda 37
21 Pakistan 55 49 Haiti 34
22 Dominican Republic 54 50 Ivory Coast 33
22 Honduras 54 50 Myanmar 33
22 Kenya 54 52 Venezuela 32
22 Thailand 54 53 Tunisia 30
26 Ecuador 53 54 Sierra Leone 28
26 Mozambique 53 55 Democratic Republic of the Congo 21
28 Jordan 52
Source: The Economist, Intelligence Unit. Global Microscope 2019: The enabling environment for financial inclusion
Chart 1.3-b
General environment for financial inclusion in 2019
Index ≥ 75 (more favorable environment)
50 ≤ Index < 75
Index < 50
Source: MAPFRE Economics (with data from The Economist, Intelligence Unit.
Global Microscope 2019: The enabling environment for financial inclusion)
19FINANCIAL INCLUSION IN INSURANCE
1.4 The role of new technologies to serve these policyholders. The considera-
tion of these types of associations as insur-
Microinsurance, by definition, encompasses ance companies depends on the regulatory
products intended for people, families, and framework in force in each market.
businesses that fall within the low-income
segment of the population. Therefore, these From this technological standpoint, there are
types of products should be supported by several elements that can influence the fu-
modern technological bases, with the goal of ture development of microinsurance. Among
achieving significant reductions in manage- them are the following:
ment and transaction costs and, consequent-
ly, making them viable for the population for • Electronic money (especially for unbanked
which they are intended. Otherwise, most of populations).
the premium would need to be allocated to
covering administration expenses, distribu- • Information obtained through artificial
tion costs, and prudential margins, which satellites and social networks.
would only allocate a very small percentage
of the premium to paying claims. This would • Sensors (wearables, telemetry), Internet of
mean that the insurance would not fulfill its things (IoT)
risk mutualization and/or savings generation
function, and would therefore not create val-
• Video calls (especially for health insur-
ue for the policyholders.
ance).
In this regard, technological platforms that
• Cloud services (data storage and comput-
have been developed for the production and
ing).
distribution of standardized mass-market
products can support the viability of microin-
surance. The aim is to take advantage of • Macro data analytics, artificial intelligence
these technological platforms as much as and machine learning (chatbots, call cen-
possible in order to incorporate products into ter management, pricing, among other
the offering with more suitable coverage for applications).
the low-income population, seeking the
economies of scale that will allow these poli- • Digital platforms (on the web or through
cies to be issued at a reasonable cost. The cellphone applications).
significant development of these web plat-
forms or cellphone applications for financial • Blockchain (still at an early stage).
services can considerably facilitate the dis-
tribution of microinsurance. The lack of information on insurance policy-
holders has been identified as one of the ma-
Furthermore, together with the platforms of jor issues when it comes to issuing microin-
major insurance and technology companies, surance policies. Therefore, these technolog-
other digital platforms developed by startups ical elements may be extremely useful when
are emerging (independent or backed by ma- segmenting clients through the data they
jor technology and/or insurance companies), provide, as they prevent the absence of such
specializing in these types of group and in- data from resulting in surcharges, which can
clusive products. As a matter of fact, strate- significantly raise the price of products. In
gic alliances with telecommunications com- addition, they facilitate the digital identifica-
panies (mobile network operators, or MNOs) tion of policyholders; the receipt, manage-
are commonly used to distribute microinsur- ment and payment of claims (including au-
ance in emerging markets. Some "peer to tomatic compensation based on indices); the
peer" (P2P) microinsurance platforms have analysis of call center calls, chatbots, infor-
also emerged. These are not linked to any mation from social networks; the detection of
pre-existing insurance company and are fraud; as well as the prevention and mitiga-
geared toward groups with similar insurance tion of risks, etc.
demands, establishing group funds in order
20FINANCIAL INCLUSION IN INSURANCE
Electronic money is particularly significant These new companies, heavily backed by
for the development of microinsurance. The technology platforms, use data that allows
policy contracting of these types of products them to better direct their marketing, such as
via prepaid cell phones is a significant phe- Cignifii (in Sub-Saharan Africa), which uses
nomenon, as it is increasing the penetration voice calls, cellphone credits or interactions
of microinsurance in regions such as Africa, on social networks to assess consumers' pro-
Latin America and emerging countries in files and behaviors. Furthermore, there are
Asia. Additionally, the digital platforms used new digital platforms emerging that facilitate
to carry out shipments and electronic sales data collection, such as Discovery Insure in
can also contribute to the development of this South Africa, which allows consumers to up-
type of product. load images on the platform in order to add
them to claims. In the case of agricultural
1.5 Insurtech inclusion initiatives property taxes, data from weather station
sensors (PlaNet Guarantee, Senegal) can be
There are numerous innovation and financial used to provide the necessary information to
inclusion in insurance initiatives through make a claim, without needing to wait to re-
what are called Insurtechs. The information ceive data from consumers in order to verify.
supplied along these lines by the Centre for
Financial Regulation and Inclusion (CENFRI) Another company that stands out is MicroEn-
is worthy of note. It provides an up-to-date sure, which began to develop its model in
view, through its tracker6, of the different ini- 2002. Through its model, insurance coverage
tiatives that are active in emerging markets in is initially provided to clients for free, the idea
Africa, Asia and Latin America. Numerous being that these clients will assess the cover-
examples of Insurtechs can be found in this age and decide to pay for it later on. MicroEn-
dynamic information, and they are continu- sure is at the forefront of bringing insurance
ously increasing. to the mass market through cellphones. In
2013, MicroEnsure Asia established itself as a
One particularly noteworthy organization is joint venture between the Telenor Group and
the Swedish company BIMA, which developed the British Company MicroEnsure Holdings
a mobile insurance platform in 16 countries, Limited. MicroEnsure is a provider special-
allowing for mobile phone access to insur- ized in insurance for the mass market, with
ance policies, including health microinsur- more than 42 clients in the African, Asian and
ance. Clients can sign up through the plat- Caribbean markets. It provides a range of life,
form, and deductions can be taken from a health and property products through a series
prepaid credit in order to pay for premiums. of distribution partners that include micro-
Founded in 20107, Milvik AB, also known as finance companies, cooperatives and mobile
BIMA Mobile, is a microinsurance company network operators8. For example, in Kenya,
headquartered in Stockholm. It currently op- MicroEnsure has partnered with the mobile
erates in countries such as Bangladesh, network operator Airtel and Pan Africa Life
Cambodia, Ghana, Sri Lanka, Senegal, Tanza- Assurance to offer free medical coverage to
nia, Indonesia, Fiji, Papua New Guinea, Haiti, Airtel clients based on the amount of monthly
Paraguay, Honduras, and Pakistan, and has airtime used. Pan Africa Life underwrites the
approximately 31 million users. It was a pio- risk and MicroEnsure handles services such
neer in the mobile insurance model, offering as the operation of the digital technology
affordable insurance and creating a system to platform. Additionally, MicroEnsure uses the
easily understand the product. A large part of teleoperator's network to send text messages
its business is driven by partnerships with that contain policy information. The program
cellphone operators or financial institutions operates through a small monthly cellphone
in emerging countries. Its products range top-up charge, which allows the telephone
from life, accident and hospitalization insur- company's clients to receive hospitalization,
ance to mobile medical insurance. The chan- life and accident coverage; this coverage in-
nel offers a completely digitized underwriting, creases if more money is spent on top-ups
payment and claims process, which clients monthly. At the end of the period operating
can carry out on their cellphones. under this model, clients have the option to
21FINANCIAL INCLUSION IN INSURANCE receive additional benefits in exchange for paying a small monthly amount as a premi- um. The goal is to encourage clients to use the phone network, while simultaneously providing low-cost insurance to low-income groups. In Kenya, Hello Doctor, in collaboration with CBA and Cannon Assurance, offers a health solutions package for Safaricom M-Pesa clients, called Semadoc, which is based on a cellphone subscription service. In this case, the hospital coverage underwritten by Can- non Assurance is supplemented with 24-hour access to doctors by text message or phone call, and clients can obtain prescriptions over the phone. Twice a day, clients receive health advice via text message. Through M-Pesa, a health account is opened when individuals sign up with Semadoc for health-related sav- ings. This account is used to pay the monthly Semadoc subscription fee and to make pay- ments at health centers. Individually, people registered with Semadoc can apply for healthcare loans, which have favorable re- payment conditions and can be paid directly at the facility. Hospital coverage is provided digitally via cellphones, through which infor- mation on benefits is provided, as well as the terms and conditions of coverage. 22
2. Microinsurance products
The expansion of protection levels for low- Life insurance linked to savings
income groups through microinsurance is a
strategy that clearly focuses on the types and While they are not common, as they are more
features of the insurance products intended complex to manage, microinsurance products
for this target population. With regard to the that include different savings elements can
first point, those that best cover the risk pro- be found in some emerging countries. In the
file of policyholders should be considered, markets in which they are sold, they tend to
while simple features and conditions should be simple risk products with some savings-
be considered for the second point. related element. In India, for example, more
complex savings microinsurance versions are
2.1 Types of products sold with periodic premiums. These products
combine death capitals with premium reim-
bursement at maturity, capitalized with a
The types of microinsurance products that
specific interest rate and a surrender value
can commonly be found in the markets at
with variable rates, which increase over time,
present9, classified according to the level of
as an incentive to remain in the contract.
difficulty and success in their implementa-
tion, are illustrated in Chart 2.1.
Property insurance
Life Protection insurance
This type of insurance can be extremely use-
ful for the low-income population, as it offers
Temporary term Life insurance is currently
protection against damage to homes, busi-
dominant in the microinsurance market.
ness inventories, or even farming and live-
Telecommunications companies (through
stock equipment, which tend to be stored in
cellphones) and micro-finance institutions
homes or adjacent structures. Usually, it
(where they have been developed) facilitate
forms part of the product range of microin-
its distribution within their usual product
surance institutions. Typical policies cover
portfolio (in which microloans, savings ac-
counts, and loan repayment microinsurance—
also called credit life insurance—prevail).
This is a temporary insurance policy in the Chart 2.1
Most common types of microinsurance
event of the death of the insured party, in or-
der to protect their family. This policy is often
combined with additional accidental death or Life (associated with receivables)
disability coverage and/or funeral expense
coverage, both for the policyholder and the Life (temporary)/
Personal accidents
family members designated by the policy-
holder. Funeral coverage normally consists of
Level of difficulty
Life (savings)
Level of success
a sum of money, although service provisions
Property insurance
are occasionally offered. Some versions also
offer benefits for the diagnosis of serious ill- Life (endowment)
ness and/or maternity. The insured sum and
the premiums are determined in considera- Agriculture
tion of the group for which the insurance is
intended (low-income population), with pre- Health
mium limits for a single policyholder. There
also tend to be exclusion periods for pre-ex-
isting illnesses and an eligibility age limit. Source: MAPFRE Economics (with data from the International
Labor Organization)
FINANCIAL INCLUSION IN INSURANCE 23FINANCIAL INCLUSION IN INSURANCE
fire and water damage, but they also occa- 2.2. Product features
sionally cover catastrophic damage caused by
nature, such as storms, flooding, and The main features of microinsurance prod-
avalanches, or damage caused by humans, ucts are summarized in Table 2.2. From the
such as during riots or military interventions, analysis of these features, it is worth high-
and certain other situations. As with other lighting the various degrees of complexity in
forms of microinsurance, limits on premiums implementing these products. Therefore, in-
and insured sums are determined in consid- clusion policies should begin by promoting
eration of the groups for which the policies the introduction of microinsurance that offers
are intended (low-income population). lower degrees of complexity, and progress in
different stages toward those with greater
Agricultural Insurance complexity.
Although it still presents significant chal- As mentioned before, a key aspect in the suc-
lenges, the outlook for agricultural microin- cess of microinsurance concerns the process
surance has evolved considerably over the of determining the premium, which must be
last two decades, due to two different ele- affordable for the target groups. Within this,
ments: (i) greater government participation the microinsurance underwriting process,
and (ii) the use of indices to define coverage. and thus the determination of technical safe-
The existence of rural agricultural coopera- ty margins that must be included in the risk
tives and other similar organizations has also premium, is essential. As illustrated in Chart
contributed to its development. 2.2, in the short-term, and faced with the lack
of sufficient information on the frequency and
Particularly, index-based agricultural mi- severity of the risks to cover, these margins
croinsurance is an alternative to traditional can weigh negatively on the price of these
indemnity insurance, in which indemnifica- products. However, in any case, it is neces-
tion is paid based on the actual loss incurred sary for these margins to be adjusted as suf-
by the policyholder, which must be assessed ficient information is collected on the partic-
individually. In the case of index-based insur- ularities of the risks covered, so that the
ance, compensation is paid to policyholders price is affordable for the groups of society
automatically if it remains within the limits of toward which this insurance is geared.
the parameters established in the contract. It
is mainly used in agriculture, but it also oc- Moreover, cutting transaction costs is an ad-
casionally applies to other business lines. ditional way to make microinsurance prod-
ucts accessible to vulnerable groups of the
Health population. This requires supplementing tra-
ditional distribution means with non-tradi-
Health microinsurance is one of the insur- tional channels, such as banking and micro-
ance products with the highest demand from finance networks, sales networks, public util-
low-income families, although it continues to ity bills, and new distribution networks based
have the lowest levels of penetration and on non-traditional intermediaries, as de-
highest levels of difficulty in implementation. scribed in the sections above. Additionally,
The most common modalities are those that the use of technology is essential to reduce
offer daily compensation in case of hospital- costs not only for contracting the product and
ization and/or single payments in the event the payment of the associated premium, but
the policyholder is diagnosed with a serious also for its management and renewal, and for
illness. Nevertheless, more comprehensive the payment of the corresponding indemnifi-
versions are also sold, which include medical cation.
information services, consultations, as well
as prescriptions for medical treatments and Finally, it should be noted that, as it is geared
monitoring over the phone, unless an in-per- toward the vulnerable population in order to
son medical visit is considered necessary. deal with the short-term effects of shocks
24FINANCIAL INCLUSION IN INSURANCE
Table 2.2
Main features of microinsurance
Item Main features
• The payment period can be split, considering the irregular income flow of insurance
policyholders.
• Premiums can be:
• Paid in cash.
Payment of premiums
• Deducted from receivable payments.
• Deducted from bank accounts.
• Deducted from pay stubs for other services.
• Collected through non-traditional intermediaries.
Product design Simple legal and technical design.
Contractual documentation Simplified and easy to understand.
Coverage Clearly defined insured sums and benefits.
• Rates fixed according to the experience of the mutual insurance companies served.
• With minimal exclusions or restrictions.
Underwriting process
• With adjustment of technical safety margins as information is collected on the specific
features of the risks covered.
• Use of non-traditional distribution channels to reduce transaction costs:
• Banking and micro-finance networks.
Distribution channels • Sales networks.
• Utility bills.
• New distribution networks based on non-traditional intermediaries.
• Use of technology to reduce costs for:
• Product contracting and premium payments.
Product management
• The management and renewal of the product.
• Payment of indemnification.
• Almost immediate.
Payment of indemnification
• With specific and minimal documentary requirements.
Source: MAPFRE Economics
caused by the materialization of risks, mi- Chart 2.2
croinsurance should be designed in such a Expected medium-term development in the
way that indemnification is paid almost im- pricing of microinsurance
mediately, with specific and minimal docu-
mentary requirements. Elimination of prudential margins
Acquisition costs
Administration costs
Prudential margins for insufficient information
Risk premium
tion Adjustment for
nsac
(-) Tra sufficient
costs information
ncy
icie
Eff
(+) cale
s
by
Traditional Microinsurance Microinsurance
insurance (short-term) (long-term)
Source: MAPFRE Economics
253. Review of relevant markets
3.1 Asia stimulated its development, which continues,
however, to be very weak, as regulatory provi-
China sions of this kind do not influence the key as-
pects that can make microinsurance both af-
fordable for the insurers offering it and bene-
One of the Chinese government's explicit
ficial for low-income populations. Insurance
public policy objectives is to increase the lev-
companies dedicate few resources to innova-
el of insurance penetration in the economy.
tion in this area and, from a supply perspec-
There is no data regarding the relevance that
tive, see the lack of data and suitable distrib-
microinsurance may have in this market, but
ution channels as the main issues for its de-
it is not common to find it within the product
velopment.
offering of insurance companies that operate
in this country. However, there are Life insur-
ance policies linked to microloans that are It should be noted, however, that savings mi-
sold through the postal system, micro-credit croinsurance with periodic premiums is sold
constitutions, and rural credit cooperatives, in this market through "Common Service
although the level of development is low. Centers" (CSC). CSCs are digitized IT plat-
Other personal microinsurance lines are also forms created for public authorities to offer
sold through what are known as "people's financial services, including insurance, and
committees"10. other public and private services. The goal of
these platforms (which make up the "CSC
Network") is to ensure reduced operating
However, there are ongoing initiatives that
costs, transparent digital processes, and easy
can be utilized in the future to increase the
accessibility to products and services, even in
penetration of microinsurance in China. For
rural areas. All of the products sold through
example, in 2018 the technology company
this network must include the letters "CSC"
ZhongAn Technology launched an IT health
at the beginning of their name. Insurance
insurance platform for the Chinese insurance
products labeled "CSC" must comply with
industry, which uses artificial intelligence
special guidelines developed by the insurance
algorithms11. This company consolidates and
supervisory authority12.
utilizes a medical database, which is seldom
available to insurance companies otherwise.
This database can be extremely useful for Indonesia
pricing microinsurance, as it provides access
to medical records, as well as for supplying In Indonesia, there is also willingness on the
data on medical directories and hospitals, as part of public authorities to develop microin-
well as other services. surance. In this regard, in 2013 an initiative
was launched known as "The grand design
India microinsurance blueprint," an action plan to
understand the market, build the microinsur-
ance industry, and improve the public percep-
India is one of the countries that wishes to
tion of microinsurance. However, although it
boost the development of microinsurance as
seems to be growing, it is still under-devel-
a coverage tool for low-income individuals. It
oped. The main issues identified by insurance
has established a system of minimum annual
companies are high development costs, an
quotas, in terms of the percentage of premi-
inadequate capital base, and the lack of cost-
ums and the number of insured persons, that
efficient distribution channels13.
it imposes on insurance companies operating
in this market. This provision has partially
FINANCIAL INCLUSION IN INSURANCE 27FINANCIAL INCLUSION IN INSURANCE
Philippines Bangladesh
In the case of the Philippines, public authori- The penetration of cellphones in Bangladesh
ties have also expressed their interest in (as in other Asian countries) is widespread,
promoting microinsurance. In 2006, "Mutual which contrasts with its low level of bank us-
Benefits Associations" (MBAs) were intro- age. Therefore, microinsurance is mostly dis-
duced in the country as a new type of mi- tributed through mobile network operators
croinsurance provider, becoming the main (Robi Axiata and Grameenphone). In particu-
catalyst for development. These served to lar, technological service provider BIMA is
formalize many micro-finance and non-gov- quite active in microinsurance marketing in
ernmental organizations, which had previ- the country, partnering with mobile operators
ously been operating informally. The microin- to do so.
surance industry has been developed with
the backing of the Ministry of Finance, with 3.2 Africa
its policy created to promote financial inclu-
sion, facilitating coordination and collabora- Africa is home to over one billion people, and
tion between different government agencies. it is estimated that around 400 million of
It should be noted that both the Insurance them still live in extreme poverty. According
Commission and local business associations to the report developed by Microinsurance
were also heavily involved in this project. Network, "Landscape of Microinsurance in
Africa 2018," the insurance market in Africa
With respect to distribution channels, is very fragmented. Despite the role that in-
the Philippines is unique insofar as a signifi- surance could play to recover and contribute
cant portion of microinsurance products is to its economy, insurance for retail business-
sold through pawnshops, which have a vast es is largely underdeveloped. The little data
network of establishments throughout the obtained on Africa impinges on global fig-
country. According to the report developed by ures, but according to data provided by 100
Milliman Research14, Cebuana Lhuillier is the insurers in this study, only 2% of the estimat-
largest company of this kind, with around ed 700 million low-income individuals is cov-
1,800 branches throughout the nation and ered with microinsurance products, for a to-
selling over one million microinsurance poli- tal of 420 million dollars in premiums (less
cies a month. Since 2017, approximately 30% than 1% of the total amount of premiums in
of Filipinos insured with microinsurance have Africa).
taken out their policy with this company15.
Credit-life, life, and funeral products make
However, according to the Milliman Research up around 60% of the microinsurance mar-
report, the industry is still facing a series of ket, although significant growth has been
important challenges. The Philippines are observed in health insurance. Life insurance
located in one of the most natural disaster- was one of the first microinsurance products
prone areas of the world, which makes it dif- in Africa, making up a significant portion of
ficult to underwrite appropriate reinsurance the market. At the beginning of 2014, health
contracts. Furthermore, the use of cash is insurance began to be used as a supplement
deeply ingrained in the population, therefore by providers such as MicroEnsure, growing
the use of alternatives such as electronic as an independent product and also forming
money is not a viable solution. As such, the part of a product package that offers life or
mobile network operator (MNO) distribution accident coverage. Additionally, new services
channel has not taken off in the Philippines. have been added to simple health coverage,
This is also compounded by the fact that its such as telemedicine which, due to its posi-
mobile network market is run by a duopoly tive reception among clients, has trans-
whose two operators have not shown interest formed health insurance into an important
in insurance innovation. product for insurers.
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