Latam Briefing: Microinsurance
Microinsurance creates opportunities to tap new markets in Latin America.
Insurers are betting on the potential of micro and inclusive insurance to grow their portfolio of clients in Latin American markets.
A number of commercial microinsurance experiences are under way in the region led by both local and multinational groups. They see the offer of less expensive and uncomplicated covers, sold via non-traditional sales channels, as a tool to reach out to a public that they would not otherwise be able to access. Local insurers say that reinsurers are also offering capacity for microinsurance products.
Nicolás Morales, the regional manager for Latin America and the Caribbean at the Microinsurance Network, a think tank, says that reports have shown that microinsurance and inclusive covers are gaining ever more relevance in Latin American markets.
“This has allowed new players to join the market, supervisors to start developing regulations to promote microinsurance, and some countries to have disaggregated information for this type of product. Many insurers now offer microinsurance in their countries,” he says.
The microinsurance market continues to present opportunities for growth as a mere fraction of the public has already purchased some kind of cover. The Microinsurance Network estimates that only between 4% and 12% of the potential population has insurance coverage.
Experiences are underway that may help to motivate more companies to dive into this market. According to Morales, life and health insurance products are the most common microinsurance covers on offer right now, and products like hospital cash insurance, which has developed further in Africa and Asia than in Latin America, present much potential for growth.
“The pandemic highlighted the protection gap that still prevails in segments such as MSMEs, women and migrants, and where there is an opportunity for the industry,” he says. “On the other hand, the region is characterized by a significant percentage of people who depend on agriculture. Climate change and exposure to natural disasters and weather have made evident the need for governments to encourage coverage to mitigate these risks. This is why for some time now we have seen parametric insurance gaining more interest in the region.”
Microinsurance products are composed by low-cost covers that offer compensation that may look small, but, considering the income levels of policyholders, can be very consequential for their families and businesses.
One of the more experienced provider of such products in the region is La Boliviana Ciacruz, in Bolivia, which has been offering microinsurance covers since it became part of the Zurich group, a decade ago. The company has more than a million microinsurance policies today, in a population of 12 million.
Mónica Beltrán, the head of Mass Market Insurance at La Boliviana, says that the experience of the company has helped it to identify some essential features that insurers must take into account if they want to reach out to a public that they have ignored for a long time.
“Microinsurance products need to be very simple to use, and so must the wordings of the policies, making it very clear how and when the premiums are charged,” she says.
Of course, they also need to be affordable. La Boliviana offers covers starting at $1 a month, going up to $4 for the most sophisticated products. The monthly charge is an important aspect as well, as for consumers at the bottom of the income pyramid, it may be hard to spend $12 in a single instalment without disrupting their budgets.
La Boliviana started offering life and health insurance policies that were similar to traditional covers, where clients have to fill out forms in order to get approval from the underwriter. But it has since evolved to simple underwriting processes where no questions are asked, and claims are processed with the presentation of only a couple of documents. The theory is that the volume of sales will prevent a non-selection process and make sure that the lines are profitable.
The company has also expanded its microfinance portfolio to include coverage for accidents, hospital costs, cancer treatment and the payment of college fees. The development of new products must be focused sharply on the needs of the population, which can vary according to the market, Beltrán stresses.
“Some years ago, we developed a product for migrants, as we identified a boom of Bolivians moving to Spain, Argentina and other countries,” she says. “It covered the workers who were abroad, and the premium was paid via the remittances they sent to their families. If anything happened to the insured, in addition to life insurance, we also covered the repatriation of the body to Bolivia.”
La Boliviana has learned that sales channels must be adapted to the characteristics of the public targeted by microinsurers. A network of agents or brokers maintained by the company would make the products economically unviable. So La Boliviana has made use of non-traditional channels such as supermarkets and pharmacies to sell their products across the country. And, in particular, it has created alliances with microfinance companies, which are very influential in the Bolivian market. The largest of all, BancoSol, is also La Boliviana’s main commercial partner.
Similar alliances are being formed in other countries as well. In Panamá, Microserfin, a microfinance firm sponsored by the BBVA Foundation, chose Spain’s Mapfre as the to launch its microinsurance offer in late 2021. The company decided to tap into this market after the approval of specific regulation by the Panamanian government in November last year, says commercial manager Clemente Castillo.
The alliance hit the road with a cover for funeral costs, which need was dramatically proved by the inability of many Panamanians to bury loved ones lost to the Covid-19 pandemic. The premium rate is $0.65 a month and more than 100,000 policies have been sold since then, according to Castillo. Next the alliance launched an oncological cover, which offers up to $5,000 for treatments at between $0.65 and $4 a month. A life microinsurance product that will cost $1.90 a month and will pay up to $5,000 is about to hit the market too.
“Those are products that were designed to meet the needs of clients. And we can reach out to a public that insurance companies have difficult to get to,” Castillo points out. “The model that really works is the one where we sell a credit product that is aligned with a microinsurance product.”
Microserfin has 27 offices that serve 44 provinces in Panama. Another microfinance outfit sponsored by the BBVA Foundation, Bancamía, has an older microfinance alliance with Mapfre, this time in Colombia, that has already originated about a dozen covers, including life, funeral costs, health, maternity and insurance for micro and small companies. Now the two companies are developing a business interruption policy for small entrepreneurs that will protect businesses against the risk of damage caused by social unrest and natural catastrophes, says Viviana Araque, a vice-president at Bancamía.
The company has also developed parametric cover with SBS, a local insurer, which has sold more than 1,000 policies since 2019, and is working with HDI to offer microinsurance products for small famers and cattle producers. Araque says that Bancamía has placed 1.1 million insurance policies so far, of which 70% were microinsurance products. The company also sells the policies alongside its microfinance loans and savings products, taking advantage of a well-established presence among the most isolated regions of a large territory.
“Our job is to show insurance companies that this is a profitable sector for them as well,” Araque remarks.
Mabyr Valderrama, the head of Sustainability at Fasecolda, Colombia’s insurance association, points out that this has exactly been the main driver behind the consolidation of the country as one of the most developed microinsurance markets in the region.
“The development of the segment in Colombia has taken place on a commercial basis, as the products are designed and sold by companies that sell traditional insurance covers, and basically without any state support or special regulation,” she says. “The microinsurance market has developed itself based on its financial sustainability, with profitability criteria and technical management of reserves.”
According to Fasecolda, microinsurance products closed 2021 with a 38.7% loss ratio in Colombia, which was significantly lower than in the industry as a whole (55.3%). They represented 2.4% of all premiums in the country in 2021, which shows the sector’s growth potential.
The numbers collected by the association also show that 23.3% of all microinsurance policies were sold via digital channels, a number that is on the rise and points to another non-traditional sales route for the industry to access a universe of many millions of uninsured customers in Latin America.
“Digital channels will enable the use of new channels such as mobile apps, web portals and telemarketing. It will also allow us to develop new products,” says La Boliviana’s Beltrán. The Bolivian government has recently authorized the sale of insurance products digitally.