As a bishop said several centuries ago, "the poor are a gold mine." The comment sounds cynical, but it's not clear whether it was meant archly or simply as a counterintuitive observation relating to the economics associated with large numbers of individuals. Whatever the case, the bishop had a point that some insurers are beginning to heed as they tap the microinsurance market, as a story in today's I&T Daily reports.The insurance industry was born in the prosperous West and spread to similarly prosperous parts of the globe, but not further. This point was driven home by a series of charts I saw at a Swiss Re briefing soon after I began reporting on the industry. The charts methodically examined various statistical aspects of the insurance market in the U.S., Europe, Japan - and little else. "Where are the other regions?" I wondered to myself, until it dawned on me that there are vast stretches of the earth that lack the benefit of insurance. The concept of microinsurance is beginning to redress that incongruity between geographies and income levels.
The fact is that poorer people can benefit from insurance just as well as the more prosperous can. Low levels of income by no means correlate uniformly to a lack of reliability, and if premiums are proportionate to income, many less prosperous individuals and families can protect their property while generating profit for the underwriters who serve them.
The secret to the market is its scale, of course - there is a huge market of people with less income than the customer the industry has traditionally served. The challenge for insurers is to match operational costs and processes to a high number of policies and transactions.
This is naturally an issue for both large global insurers and regional insurance players in emerging markets, such as India and China. Successes in East Asia are likely to lead to expansion of offerings into places like Central Asia, Africa and Latin America. It may transpire that lessons learned from this business will translate to other market opportunities for smaller risks and those of a more temporary nature, similar to the travel insurance and car rental liability insurance markets.Successes in East Asia are likely to lead to expansion of offerings into places like Central Asia, Africa and Latin America. It may transpire that lessons learned from this business will translate to other market opportunities for smaller risks and those of a more temporary nature, similar to the travel insurance and car rental liability insurance markets.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio