ACCESS TO INSURANCE FOR THE POOR

1
ACCESS TO INSURANCE FOR THE POOR
MICROINSURANCE IN COLOMBIA
Roberto Junguito, Alejandra González, Jimmy
Martínez, Juan Manuel RestrepoFASECOLDAMay 7-8
Rio de Janeiro, Brazil
2
TOPICS

• 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

3
TOPICS

• 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

4
THE BASE OF THE PYRAMID

• 4 billion people in the world with an annual
  income less than 3000 US are part of the base of
  the pyramid (BOP).
• The worlds BOP has potential market worth 5,000
  billion US
• - Latin America 509 billion US
• - Colombia 42 billion US

5
BASE OF THE PYRAMID DISTRIBUTION
BOP population (million)
BOP annual income (million)
Source IFC
6
TOPICS

• 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

7
THE POOR ARE MORE VULNERABLE TO RISKS
1
1
2
2
3
3
4
4
5
5
1
2
3
4
5
Source Living Standards Measurement Study
Survey, 2003
8
THE POOR ADOPT PERVERSE STRATEGIES TO COVER
LOSSES
PERVERSE
INFORMAL AND FORMAL
Source Living Standards Measurement Study
Survey, 2003
9
MICROINSURANCE A FORMAL INSTRUMENT THAT
MITIGATES RISKS

• 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.

10
PEOPLE COVERED BY MICROINSURANCE IN THE WORLDS
POOREST COUNTRIES
Source The Landscape of Microinsurance in the
Worlds 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.
11
POTENTIAL MARKET SIZE
Source The Landscape of Microinsurance in the
Worlds 100 Poorest Countires, Microinsurance
Centre, 2007 The Next Four Billion, BM, 2007.
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
12
TOPICS

• 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

13
SOCIAL ECONOMIC LEVEL (SEL)
Source Fasecolda and Remolina Estrada 2007
14
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 insureds income flow.

Source Fasecolda and Remolina Estrada 2007
15
LOW INCOME HOUSEHOLDS ARE MORE EXPOSED TO RISKS
Frequency with which households suffer losses.
Type of loss
Source Fasecolda and Remolina Estrada 2007
16
HOUSEHOLDS COVER WITH OWN RESOURCES THE MAIN
PORTION OF LOSSES
Source Fasecolda and Remolina Estrada 2007
17
INSURANCE BY SOCIAL ECONOMIC LEVEL
Source Fasecolda and Remolina Estrada 2007
18
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
19
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
20
POOR HOUSEHOLDS UNDERESTIMATE RISK
Source Fasecolda and Remolina Estrada 2007
21
POOR FAMILIES FAVOR MONTHLY PREMIUM PAYMENTS
Source Fasecolda and Remolina Estrada 2007
22
TOPICS

• 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

23
COMPANIES OFFERING MICROINSURANCE
Source Fasecolda
24
MICROINSURANCE ISSUED PREMIUMS
Source Fasecolda
25
NUMBER OF INSURANCE POLICIES
TOTAL 2,741,656
Source Fasecolda
26
PREMIUM AND PAYMENT FREQUENCIES

• Most products have both a monthly coverage and
  payment frequency
• It provides the insured large flexibility.

Source Fasecolda
27
PRICE OF MICROINSURANCE PREMIUMS
Source Fasecolda
28
PRODUCT EXAMPLES
Source Fasecolda
29
LOSS PAYMENTS
Source Fasecolda
30
DISTRIBUTION CHANNELS
Source Fasecolda
31
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

32
CONTRIBUTIONS

• The majority of companies dont receive
  contributions from NGOs or government
  institutions.
• Only one company does.

33
TOPICS

• 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

34
CONCLUSIONS

• 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

35
CONCLUSIONS

• 41 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.