Microinsurance provides a unique opportunity for both insurers and insureds. Insurers (and their shareholders) can benefit from the growth potential afforded by new markets. At the same time, insureds can gain access to protection — not currently available — for personal property and small businesses. As a result, microinsurance can help emerging markets recover quickly from disasters, prevent massive losses of wealth among citizens, and pursue sustainable economic growth.
The barriers to implementation of microinsurance are substantial. Local historical loss data usually doesn’t exist. When it does, it’s often in disparate and inconsistent systems and formats. Without access to relevant data, insurers may feel they’re flying blind — exposing themselves to risk with no way to mitigate it. Absent historical loss data, insurers can’t apply the risk and capital management practices they use every day to protect their policyholders and shareholders.
For insureds, the challenge lies in overcoming the learning curve. Where insurance cover (particularly for personal lines) either doesn’t exist or has very low market penetration, insurers need to educate the local community on the benefits and mechanics of insurance protection. That takes time, effort, and investment, compounding the risks associated with insufficient or inaccessible historical loss data.
To succeed, a microinsurance program has to have — at a minimum — the potential to become self-sustaining in the long term. Such a program requires development of a robust infrastructure for capturing and analyzing claim data. In the early days of a microinsurance program, the data may not yield much intelligence, but the use of best practices from the start can shorten the path to self-sustainability, profitable growth, and the creation of shareholder wealth.
Clearly, the claims department can play a crucial role in the process. Operational discipline, the development of a central claims database, and a clear commitment to claimant service can go a long way to supporting the long-term viability of a microinsurance program.
With competition already stiff in most mature markets, global insurers need to find new opportunities for growth outside the borders they’ve traditionally served. While the risks are high, time and commitment provide a strong foundation for a significant and enduring competitive advantage.
In the posts that will follow in “Microinsurance and Claims” — a four-part series here on the Verisk blog — you’ll gain insights into key claims issues and considerations for insurers and reinsurers interested in microinsurance.