Demand for small credit life insurance products in the world’s emerging markets is strong, but making a profit on microinsurance products in those markets can be trick.
Analysts at Swiss Re talk about the popularity of life and health microinsurance products in emerging markets, and other emerging market insurance trends, in a new report on insurance in those markets.
(Related: Microinsurance Body Seeks Proposals)
Insurers in wealthy countries have a financial incentive to pay attention to insurance trends in the emerging markets, because insurance sales in those markets are growing rapidly: the emerging markets accounted for 20% of all world insurance premiums in 2016, up from 5% 20 years earlier, according to the Swiss Re analysts.
Wealthy country insurers may also find they can experiment with new ideas in emerging markets, then use that knowledge to launch new types of products in their home countries.
In the United States, for example, the pioneers in the health reimbursement arrangement and health savings account markets based their programs partly on lessons from the health account programs available in South Africa.
Today, in the emerging markets, micro credit life insurance policies that pay off the balance of a loan when the borrower dies are hot, the Swiss Re analysts say.
Term life policies that cover funeral expenses are also popular.
In Alexandria, in Egypt, the Alexandria Business Association offers a kind of life insurance-credit life hybrid: a borrower can get a special policy that pays off on the death of the borrower. The issuer first pays off the loan. The borrower’s family gets a death benefit equal to the difference between the remaining loan balance at the time of the borrower’s death and the amount initially borrowed.
One of the problems with selling micro life and health products in developing countries is that sales and administration costs eat up the profits, the Swiss Re analysts say.
Some organizations are trying to overcome that problem by using community-based groups to help distribute and reinsure the microinsurance policies.
The Swiss Re analysts note that the evolution of life, health and annuity sectors in emerging markets can follow many different paths.
In China, for example, the insurance sector started with direct government support.
In Chile, private companies took the lead.
In many countries, property-casualty insurance takes root before life insurance, but, in India, strong sales of life insurance-based savings products helped the life sector grow faster than the property-casualty sector.
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