May 2007 ACCESS TO INSURANCE FOR THE POOR MICROINSURANCE IN COLOMBIA Roberto Junguito, Alejandra González, Jimmy Martínez, Juan Manuel Restrepo FASECOLDA May 7-8 Rio de Janeiro, Brazil

May 2007 THE BASE OF THE PYRAMID: A MARKET READY TO BE DISCOVERED MICROINSURANCE: BUSINESS OPPORTUNITY THAT REDUCES POVERTY MICROINSURANCE IN COLOMBIA –DEMAND –SUPPLY CONCLUSIONS: CLOSING THE GAP TOPICS

May 2007 THE BASE OF THE PYRAMID: A MARKET READY TO BE DISCOVERED MICROINSURANCE: BUSINESS OPPORTUNITY THAT REDUCES POVERTY MICROINSURANCE IN COLOMBIA –DEMAND –SUPPLY CONCLUSIONS: CLOSING THE GAP TOPICS

May billion people in the world with an annual income less than 3000 US$ are part of the base of the pyramid (BOP). The world’s BOP has potential market worth 5,000 billion US$ - Latin America: 509 billion US$ - Colombia: 42 billion US$ THE BASE OF THE PYRAMID

May 2007 BOP annual income (million) BOP population (million) BASE OF THE PYRAMID DISTRIBUTION Source: IFC

May 2007 THE BASE OF THE PYRAMID: A MARKET READY TO BE DISCOVERED MICROINSURANCE: BUSINESS OPPORTUNITY THAT REDUCES POVERTY MICROINSURANCE IN COLOMBIA –DEMAND –SUPPLY CONCLUSIONS: CLOSING THE GAP TOPICS

May 2007 THE POOR ARE MORE VULNERABLE TO RISKS Source: Living Standards Measurement Study Survey,

May 2007 THE POOR ADOPT PERVERSE STRATEGIES TO COVER LOSSES PERVERSE INFORMAL AND FORMAL Source: Living Standards Measurement Study Survey, 2003

May 2007 Insurance product of limited coverage and small transaction values that are offered to low income households. Households may overcome poverty traps. Microinsurance allows these households to invest in riskier but more profitable productive activities. Allows the poor to smooth consumption through indemnization payments in case losses occur. MICROINSURANCE: A FORMAL INSTRUMENT THAT MITIGATES RISKS

May 2007 PEOPLE COVERED BY MICROINSURANCE IN THE WORLD’S POOREST COUNTRIES Source: The Landscape of Microinsurance in the World’s 100 Poorest Countires, Microinsurance Centre, 2007 Asia includes: Turkmenistan, Pakistan, India, Sri Lanka, Nepal, China, Bangladesh, Laos, Cambodia, Vietnam, Filipinas, Indonesia LAC includes: Guatemala, Nicaragua, Panama, Dominican Rep., Colombia, Venezuela, Ecuador, Peru, Bolivia, Paraguay Africa includes: Mauritania, Senegal, Mali, Burkina Faso, Ghana, Togo, Benin, Nigeria, Cameroon, Gabon, D. R Congo, Rwanda, Uganda, Tanzania, Zambia, Malawi, Comoros y Madagascar.

May 2007 POTENTIAL MARKET SIZE Source: The Landscape of Microinsurance in the World’s 100 Poorest Countires, Microinsurance Centre, 2007; The Next Four Billion, BM, Asia includes Bangladesh, Cambodia, China, Filipinas, India, Indonesia, Nepal, Paquistan, Sri Lanka, Vietnam; LAC includes Bolivia, Nicaragua, Ecuador, Guatemala, Paraguay, Venezuela, Peru, Colombia, Panamá; Africa includes Burkina Faso, Camerún, Gabón, Malawi, Mali, Nigeria, Ruanda, Senegal, Tanzania, Uganda, Zambia

May 2007 THE BASE OF THE PYRAMID: A MARKET READY TO BE DISCOVERED MICROINSURANCE: BUSINESS OPPORTUNITY THAT REDUCES POVERTY MICROINSURANCE IN COLOMBIA –DEMAND –SUPPLY CONCLUSIONS: CLOSING THE GAP TOPICS

May 2007 SOCIAL ECONOMIC LEVEL (SEL) Source: Fasecolda and Remolina – Estrada 2007

May 2007 OCCUPATION The high portion of freelance workers represents a challenge to insurance companies due their income instability. Insurance products must be flexible to adapt to the insured’s income flow. Source: Fasecolda and Remolina – Estrada 2007

May 2007 LOW INCOME HOUSEHOLDS ARE MORE EXPOSED TO RISKS Frequency with which households suffer losses. Type of loss Source: Fasecolda and Remolina – Estrada 2007

May 2007 HOUSEHOLDS COVER WITH OWN RESOURCES THE MAIN PORTION OF LOSSES Source: Fasecolda and Remolina – Estrada 2007

May 2007 INSURANCE BY SOCIAL ECONOMIC LEVEL Source: Fasecolda and Remolina – Estrada 2007

May 2007 INSURANCE OR GAMBLING? Low income population spends the same proportion in insurance products as in lottery games. Notwithstanding, the death probability at 30 years is more than 50 times the probability of winning the lottery. Insurance and financial culture must be promoted % of households’ annual expenses* * Data corresponds to households that made both expenses. Source: Fasecolda and Remolina – Estrada 2007

May 2007 HOW DO HOUSEHOLDS PERCEIVE VOLUNTARY INSURANCE? * The predominant perception is that insurance is a fundamental need. However, low income households view insurance as a luxury or as necessary but unattainable service. Limited budget is a barrier poor people face to purchase insurance *Life, home and vehicle insurance are included. The questions was asked for a basket of insurance voluntary insurance products which include Life and Property and Casualty. Source: Fasecolda and Remolina – Estrada 2007

May 2007 POOR HOUSEHOLDS UNDERESTIMATE RISK Source: Fasecolda and Remolina – Estrada 2007

May 2007 POOR FAMILIES FAVOR MONTHLY PREMIUM PAYMENTS Source: Fasecolda and Remolina – Estrada 2007

May 2007 THE BASE OF THE PYRAMID: A MARKET READY TO BE DISCOVERED MICROINSURANCE: BUSINESS OPPORTUNITY THAT REDUCES POVERTY MICROINSURANCE IN COLOMBIA –DEMAND –SUPPLY CONCLUSIONS: CLOSING THE GAP TOPICS

May 2007 COMPANIES OFFERING MICROINSURANCE Source: Fasecolda

May 2007 MICROINSURANCE: ISSUED PREMIUMS Source: Fasecolda

May 2007 NUMBER OF INSURANCE POLICIES TOTAL 2,741,656 Source: Fasecolda

May 2007 PREMIUM AND PAYMENT FREQUENCIES Most products have both a monthly coverage and payment frequency It provides the insured large flexibility. Source: Fasecolda

May 2007 PRICE OF MICROINSURANCE PREMIUMS Source: Fasecolda

May 2007 PRODUCT EXAMPLES Source: Fasecolda

May 2007 LOSS PAYMENTS Source: Fasecolda

May 2007 DISTRIBUTION CHANNELS Source: Fasecolda

May 2007 REINSURANCE The majority of companies retain most of the microinsurance risk –The share of microinsurance in total premiums is very low –Loss experience has been low –Foreign owned companies reinsure with headquarters No barriers to reinsurance have been encountered

May 2007 CONTRIBUTIONS The majority of companies don’t receive contributions from NGO’s or government institutions. Only one company does.

May 2007 THE BASE OF THE PYRAMID: A MARKET READY TO BE DISCOVERED MICROINSURANCE: BUSINESS OPPORTUNITY THAT REDUCES POVERTY MICROINSURANCE IN COLOMBIA –DEMAND –SUPPLY CONCLUSIONS: CLOSING THE GAP TOPICS

May 2007 Colombia shows an outstanding development of microinsurance practices However, only 10% of the BOP is covered. Poorest households are more exposed and they underestimate risks. Risks are mainly covered with own resources and inappropriate strategies. Poor households spend the same on gambling and lottery as they do on insurance. Insurance and financial culture must be encouraged CONCLUSIONS

May % of Colombian companies provide some type of microinsurance Equidad and Solidaria, the cooperative insurance companies, have had an outstanding performance There is a great variety of coverage's being offered. Microinsurance have focused on the urban sector. Microinsurance development in Colombia is based on market solutions. CONCLUSIONS