Approximately one-fourth of Latin America's 569 million residents live on less than $2 per day, and many Latin Americans do not have any type of insurance. Recent trends involving microinsurance, however, may begin to ameliorate the previously intractable problem of low insurance penetration in the near future.
Microinsurance, somewhat analogous to but less well understood than microfinance, refers to insurance products characterized by very low premium and/or low coverage limits. Other than the size of the policy, microinsurance operates in very similar manners to standard insurance sold throughout the world. During the last few years, several international insurers have begun to sell microinsurance products, very often through a philanthropic arm of the corporate entity. They are not, however, the only providers of microinsurance, as there are many non-governmental organizations, community-based organizations and informal microfinance groups that sell microinsurance products. Microinsurers are writing several types of insurance, including funeral product insurance, agriculture insurance, health insurance and life insurance.
There are some notable differences between microinsurance and standard insurance. Microinsurance policies are generally written in simple language and have few, if any, exclusions. Microinsurers generally attempt to simplify the claims handling process so that there are rarely disputes or complex investigations before claims are paid. Premiums are often paid in sporadic installments because of the potentially volatile cash-flow of the insureds. Microinsurance products are often sold in locations where they are guaranteed to garner the attention of the market. For example, some supermarkets in South Africa sell funeral insurance and insureds can pay the first premium as they pay for their meat and produce.
A number of international insurers, including Chartis, Zurich, Allianz and Swiss Re, sell microinsurance products in various parts of the world. According to various reports, these insurers have created microinsurance products to give the companies a broader platform in the various markets and in order to be the primary provider of insurance to the individual microinsureds as they move into the middle class and begin to purchase more traditional insurance products. It is too early to tell, however, whether this strategy is proving successful and whether microinsurance itself can become a profitable business line.
Peru's insurance regulator, the Superintendencia de Banca, Seguros y AFP ("SBS"), announced midway through 2009 that it had completed its drafting of new proposed regulations regarding microinsurance, which was later passed after a comment period. Armando Caceres, the Adjunct Superintendent of Insurance, reportedly stated that "the intention of [the project] is to generate a more flexible regulatory structure that permits the spreading of group risks, for example, by the general public without cost restrictions." Among other things, the new regulations remove maximum costs restrictions for microinsurance and permit additional modes of distribution for microinsurance products.
Brazil continued to move toward passage of comprehensive microinsurance legislation, although its progress was typically halting. In the Fall, SUSEP indicated that the timeline for microinsurance legislation had been further extended. The bill, which had been previously delayed from June 30 to September 30, was postponed for at least another 5 to 6 months. Then, in the last days of 2009, Susep's superintendent, Armando Vergilio dos Santos, stated that he expected the country's proposed microinsurance law to be approved before April 2010. Although dos Santos indicated that the act ultimately passed may be the version currently before the Congress or a revised law to be proposed by the executive branch, he stated that "the important thing is that microinsurance will be treated as a government priority."
Microinsurance regulation was a popular topic in a number of other Latin American jurisdictions in 2009, including Chile and Mexico.
Studies indicate that the potential number of customers for microinsurance products in Latin America is in the hundreds of millions. A private think tank, the Center for Financial Regulation and Inclusion, released a study in 2009 finding that the Brazilian insurance industry alone could see between 23 and 33 million new customers in the coming years as a result of microinsurance. Another study indicated that Mexico alone has some 60 million potential microinsurance customers. Given the existing need, and the commitment of local regulators and international companies to the development of the sector, the sale of microinsurance products is expected to grow in other Latin American nations as well during the next few years.
However, microinsurance currently exists largely as a charitable and/or marketing tool. For that reality to ever change and for microinsurance to truly become a profitable line of business for insurers, a few changes must take place, including the following: (1) as the reach of microinsurance products expands, the overall premium and risk volume will grow exponentially; (2) this will likely lead to a developing sophistication of the microinsurance industry, partly because more global insurers will be issuing microinsurance products; (3) these global insurers will need to begin treating microinsurance as more akin to other types of insurance that they are writing, finding ways to develop more sophisticated underwriting, actuarial analysis, claims and other functions despite the small sizes of individual policies; (4) as more international insurers issue microinsurance, they will need to begin pooling the microinsurance risks and ceding them to reinsurers just as they cede other risks, something largely absent in the current microinsurance market.
If these changes come to pass, the microinsurance market will eventually operate more like the standard insurance market and "microinsurance" will simply become another branch of insurance companies' "insurance" operations. If these changes do not occur, microinsurance will remain a largely charitable endeavor, greatly reducing the possibility that it will ever expand to an extent sufficient to fund significant recovery from a disaster such as the earthquake in Haiti.
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