1. T HE L ANDSCAPE OF M ICROINSURANCE IN LAC: G APS AND O PPORTUNITIES M ICROINSURANCE F ORITO XVI I NTER -A MERICAN F ORUM ON M ICROENTERPRISE – F OROMIC 2013 M ICHAEL J. M C C ORD M ICRO I NSURANCE C ENTRE 29 S EPTEMBER, 2013

2. Microinsurance in LAC 7.6% of the region’s population is covered by microinsurance However, this is primarily by low-value life and personal accident products  Need to expand beyond basic products and increase volume of people covered 7.8% without Brazil and Mexico 2.6% without top five (JM, PE, EC, CO, MX) No. Insured, MMCoverage ratio Market could be over 300 million covered with premiums of over USD 6 billion.

3. What gaps in microinsurance development do we see? What opportunities are there for addressing them? 2 questions: Start by identifying various market types…

4. Country allocation by market typology Criteria: macroeconomic, commercial, development, other market issues

5. Characteristics MI just starting/about to start Few insurers, maybe one basic product Often small population Gaps Know-how Product development Actuarial analysis Voluntary sales Regulatory support Working with non-MFI channels IT, especially back office Consumer protection

6. Recommendations Regulation: Proportional supervision Distribution Enhance capacity Meso level: Technical assistance capacity building Sharing lessons Micro level / private goods: Paradigm shift facilitation Institutional structuring for MI

7. The Case of Costa Rica Characteristics: Insurance was state- controlled monopoly until 2008 First private insurers began sales in 2010 No MI identified yet Gaps: Lack of distribution channels (MFIs reach only 25,000) Lack of insurer motivation or capacity for microinsurance Lack of client demand and knowledge

8. Regulation: Learning from other jurisdictions Distribution MFI network is looking to partner w/ an insurance broker; pilot in progress Need creativity in distribution, as MFI outreach is low Meso level: Leverage REDCAMIF regional network Micro level / private goods: Niche markets: microentrepreneurs and Nicaraguan immigrants Overcome the ‘brand’ of the state-run company Recommendations/ Opportunities – Costa Rica

9. Characteristics MI market is driven by MFIs Limited growth from other distribution channels Gaps Voluntary sales Back office and IT capacity Brokers and intermediaries Cost accounting and controls Health covers Ag covers Claims assessment technologies Consumer protection

10. Recommendations Regulation: Assess structures in relation to IAIS paper on inclusive insurance Proportional supervision Consumer protection strategies Reduce/eliminate taxes Distribution Coordinate with other regulatory bodies regarding new distribution channels (e.g. mobile service providers) Enhance capacity of distributors Meso level: Capacity building of insurance associations and their institutes Insurance training institutions Actuaries and risk tables Technical assistance capacity building Develop IT systems Sharing lessons Micro level / private goods: Help institutions understand cost structures Institutional structuring for MI Paradigm shift facilitation

11. Characteristics: Vibrant microfinance market Regulatory requirements of credit market help drive microinsurance Sophisticated market in terms of risks covered, accessibility, and simplicity Reasonable MFI commissions (12-18%) Client protection has evolved Gaps: Distribution is concentrated in MFIs, credit-linked products Lack of affordability for more complex products Lack of client knowledge/demand outside of MFI network 7.23% MI coverage ratio The Case of - Bolivia

12. Regulation: Clarify distribution requirements to facilitate alternative distribution Consider incentives to expand MI market Distribution Identify and build capacity of alternative distribution channels Understand costing Meso level: Market education Insurance association to take a larger role in MI advocacy Micro level: Improve capacity of insurers to respond to market needs Understand costing and risk to improve pricing Recommendations - Bolivia

13. Characteristics Robust middle class Distinction between traditional insurance and microinsurance is ambiguous Reaches large numbers of people, but with basic products, some with questionable value Gaps Consumer protection Regulatory support Regulatory requirements – policy content Linkages with mission-led institutions IT/Back office efficiencies Cost accounting and controls Health and ag covers

14. Regulation: Assess structures in relation to IAIS paper on inclusive insurance Proportional supervision Consumer protection strategies Reduce/eliminate taxes Distribution Clarify legal structures for distribution Coordinate with other regulatory bodies regarding new distribution channels (e.g. mobile service providers) Enhance capacity of distributors Meso level: Capacity building of insurance associations and their institutes Insurance training institutions Actuaries and risk tables Technical assistance capacity building Develop IT systems Sharing lessons Micro level / private goods: Help institutions understand cost structures Recommendations

15. Characteristics: “Popular” or “mass market” insurance provided mainly by formal commercial insurers Regulators recently developed “8 Circulares” that address mi Significant R&D initiatives inform insurers Gaps: Limited distribution to poorest populations and rural areas Little effort made to track product value or social performance 5.36% mi coverage ratio The Case of - Brazil

16. Regulation: Circular implementation Careful consumer protection Distribution Improvement in coverage through MFI/banking agencies Meso level: Facilitation of technology to improve efficiencies Expansion to rural areas Enhance linkages with government programs and others that currently reach rural areas Micro level / private goods: Development of innovative, market- responsive products Recommendations – Brazil

17. Characteristics Robust and rapidly-growing middle class Both strong in microfinance and have many “alternate” delivery channels Multiple strong insurers and channels competing for mi business Gaps Consumer protection Regulatory support Cost accounting and controls IT Health and ag covers

18. Recommendations Regulation: Assess structures in relation to IAIS paper on inclusive insurance Proportional supervision Consumer protection strategies Reduce/eliminate taxes Distribution Clarify legal structures for distribution Coordinate with other regulatory bodies regarding new distribution channels (e.g. mobile service providers) Meso level: Capacity building of insurance associations and their institutes Actuaries and risk tables Sharing lessons Market education: Develop for specific needs of each market Monitor effectiveness of market education efforts

19. Characteristics: Vibrant, commercially sustainable market 25 insurers report MI to FASECOLDA FASECOLDA provides market education, capacity building, data collection, representation Exploring alternative channels due to growing cost of distribution through MFIs and utilities Competition creates tension between profitability and value for clients Gaps: 2 major channels (MFIs and utilities) are nearly tapped out High commissions erode value Lack of high value products and high value innovation 17.23% mi coverage ratio The Case of - Colombia

20. Recommendations – Colombia Regulation: Consider impact on MI implications in decision making (ex. In-kind funeral) Distribution Take advantage of existing infrastructure such as call centers Meso level: Continue to leverage efforts of and share lessons from FASECOLDA Micro/institutional level: Shift focus to long-term thinking Agriculture insurance

21. Opportunities/Recommendat ions Further MI development will require both public and private goods Focusing on the gaps identified for each of the market typologies will have the greatest effect Key areas for action: Legal framework Distribution Market education Meso level capacity / infrastructure Micro / institutional level capacity

22. Microinsurance in Latin America and the Caribbean – the Way Forward Focus interventions on the Credit-led and Mass market-led country types Let early microinsurance champions begin to develop and show commitment in Frontier countries before significant interventions are undertaken Hybrid countries need less intervention but can provide lessons and experience to the rest of the region Growth will continue in the region, but without key interventions, it will continue on the same trajectory of basic products and a push to mass market

23. 23 The MicroInsurance Centre “Developing partnerships to insure the world’s poor” www.MicroInsuranceCentre.org mjmccord@MicroInsuranceCentre.org