Low-income households across the developing world are vulnerable to risks and often can’t afford to be insured or don’t have a good understanding of what insurance is. So they often end up facing risks around their health and property on their own. These risks are often especially high as many consumers live in countries with weak health infrastructure or that are exposed to natural disasters.

Microinsurance is a relatively new approach that offers coverage to low-income households (hence the ‘micro’). It aims to cover lives and protect the assets of individuals and families from natural disasters, illness, death, accidents and other risks. Microinsurance reflects the knowledge base and resources of its target audience, who are often not that familiar with insurance: it is cheap and easy to understand.

Tremendous Opportunity, but Risks Abound

The potential market is great. There are four billion people at the base of the global income pyramid. Currently, microinsurance provides coverage to 500 million households, and that figure could pass the one billion mark by 2020.

In 2013 the microinsurance market was worth US$0.7bn in Africa and US$1.5bn in Latin America, and both are respectively expected to grow at a compounded annual growth rate of 13% and 17%, creating a market

A Big Opportunity Helping Low-income Households with Microinsurance

Microinsurance could provide coverage to one billion households by 2020

worth US$ 1.6bn and US$2.8bn. Although microinsurance represents a huge opportunity medium- and long-term, it is a complex business that can generate losses in the short-term if the business case is not well thought through. Another challenge is to maximise scale while minimizing administrative costs and enabling consumers to understand insurance and afford premiums.

The Role of Mobile

One key route to market is mobile phone network operators. Insurers can partner with operators to use their technology and their agent network to reach consumers. This is especially important to both contact consumers and get payments in markets where bank accounts and credit cards are rare. In fact almost 6 in 10 adults in developing economies are “unbanked,” per the World Bank, due in part to costs, travel distances and the paperwork involved. That’s why mobile phones have the potential to revolutionize transactions. As mobile money slowly comes to fruition, it will make a major impact on developed markets. Through mobile network operators, the microinsurance market in Africa grew more than 200% between 2010 and 2012.

Microinsurance is a very complex business and implementing a business case requires strong partnerships, a deep knowledge of the market, and a passion for those who need help. The opportunity is huge given the size, aspirations and growth of the demographics concerned, and the rising needs and the growth of mobile phones both in terms of customers and technologies.

Willis Affinity, for example, is partnering with a top mobile player in Africa to run pilot projects that test our joint value propositions and educate the market.

While there are good examples of microinsurance worldwide, some projects are failing, so the industry as a whole needs to do more to help low-income households feel more secure with the risks in their lives, and to help emerging countries grow.

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Pierfrancesco Ricca is International Affinity Marketing Manager for Willis Group, based in London.

He joined Willis in 2008 as Head of Marketing for Willis Italy, and then moved to London to get the responsibility of Marketing for Europe. He is now heading the Affinity Marketing activities and supporting Business Development for the growing Global Affinity Practice, developing and delivering bespoke marketing solutions that add value to the partners (clients) business, by building a dynamic, effective and personalized strategy.

He has more than 11 years of experience between the Telco and insurance industry. Pier has a degree in Economics, as well as an MBA and a specialization in Insurance Marketing and Distribution Channels.

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