Mapfre : Financial inclusion in insurance
Executive summary :
The concept of financial inclusion is the process through which a society has access to different financial services (credit, savings, insurance, payment and pension services), as well as financial education mechanisms, with the goal of improving its material conditions of well-being. In the case of insurance activity, financial inclusion focuses on allowing lower-income groups of society to gain access to the products that enable them to protect their life, health and assets, through the savings and loss compensation processes which are an inherent part of insurance products.
Policy and technology
Two main factors can be identified that have influenced the development of microinsurance globally in recent years. The first is the willingness of public authorities to stimulate its growth as part of the design of specifically created public policies; and the second is technology, which can facilitate access to a broad group of potential policyholders (even in rural areas) at a reasonable cost.
The future relies on technology
From the analysis conducted in this report, it can be inferred that the future viability of microinsurance will depend largely on its ability to be supported by modern technological bases. Otherwise, most of the premium would need to be allocated to covering administration expenses, distribution costs, and prudential margins, which would only allocate a very small percentage of the premium to paying claims. This would prevent the insurance from fulfilling its risk mutualisation and/or savings generation function; it would therefore not create value for microinsurance policyholders.
Economies of scale are important
This report also highlights that IT platforms designed for the production and distribution of standardised mass-market products can support the viability of microinsurance. The aim is to take advantage of these technological platforms as much as possible in order to incorporate products into the offering with more suitable coverage for the low-income population, seeking the economies of scale that will allow these policies to be issued at a reasonable cost. The significant development of these web platforms or cellphone applications for financial services can considerably facilitate the distribution of microinsurance.
Developing economies are the target
This report analyses the main markets of Asia, Africa, Latin America and the Caribbean, which have large middle-to-low income populations— the target group of microinsurance. The analysis indicates that the environment for financial inclusion is improving at a global level, with Latin America leading the way in infrastructure and regulation. Colombia, Peru, Uruguay, Mexico and India are some of the most advanced countries. However, even in these countries, there is still a long way to go.
Opportunities for an expanded market
As for the segment of insurance markets relevant for this report, temporary term life insurance is currently dominant in the microinsurance market. However, versions of life savings insurance, property insurance, and agricultural insurance can also be found, as well as health microinsurance—one of the insurance products with the highest demand among low-income families, but also with the lowest levels of penetration and highest levels of complexity in terms of its implementation.
Insurance to improve financial inclusion
Finally, the study delves into the public policy measures that could be adopted, both from a supply and demand point of view, in order to promote financial inclusion through microinsurance, breaking down the barriers that curb its development.
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