Post on 27-Dec-2015
May 2007
ACCESS TO INSURANCE FOR THE ACCESS TO INSURANCE FOR THE POORPOOR
MICROINSURANCE IN COLOMBIAMICROINSURANCE IN COLOMBIA
Roberto Junguito, Alejandra González, Jimmy Martínez, Juan Manuel RestrepoRoberto Junguito, Alejandra González, Jimmy Martínez, Juan Manuel Restrepo
FASECOLDAFASECOLDA
May 7-8 Rio de Janeiro, BrazilMay 7-8 Rio de Janeiro, Brazil
May 2007
• 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
TOPICSTOPICS
May 2007
• 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
TOPICSTOPICS
May 2007
• 4 billion people in the world with an annual income less than 3000 US$ are part of the base of the pyramid (BOP).
• The world’s BOP has potential market worth 5,000 billion US$- Latin America: 509 billion US$- Colombia: 42 billion US$
THE BASE OF THE THE BASE OF THE PYRAMIDPYRAMID
May 2007
BOP annual income (million)
BO
P p
op
ula
tio
n
(mil
lio
n)
1.0
10.0
100.0
1,000.0
10,000.0
0.0 20,000.0 40,000.0 60,000.0 80,000.0 100,000.0 120,000.0 140,000.0 160,000.0 180,000.0 200,000.0
LAC Asia
Africa Eastern Europe
India China
Brazil
Bangladesh
Colombia
Mexico
Nigeria
Etiopía
PanamaUruguay
Russia
BASE OF THE PYRAMID BASE OF THE PYRAMID DISTRIBUTIONDISTRIBUTION
Source: IFC
May 2007
• 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
TOPICSTOPICS
May 2007
THE POOR ARE MORE THE POOR ARE MORE VULNERABLE TO RISKSVULNERABLE TO RISKS
COLOMBIASHARE OF HOUSEHOLDS THAT SUFFERED ECONOMIC HEALTH AND NATURAL
DISASTER SETBACKS, BY INCOME QUINTILE
0%
5%
10%
15%
20%
25%
30%
35%
Any serious illness or disease Head of family unemployed Natural Disasters
Source: Living Standards Measurement Study Survey, 2003
11
22 3344
55
11 22
3344
5511
22 3344
55
May 2007
THE POOR ADOPT PERVERSE THE POOR ADOPT PERVERSE STRATEGIES TO COVER LOSSESSTRATEGIES TO COVER LOSSES
COLOMBIA STATEGIES ADOPTED IN THE EVENT OF ECONOMIC SHOCKS
BY INCOME QUINTILE
11
1
1
1
2 2
2
2
2
33
3
3
3
4 4
4
4
45
5
5
5
5
0%
5%
10%
15%
20%
25%
Food expenses werereduced
Clothing expenseswere reduced
Other householdmembers started to
work
Incurred debts Savings were spent
% O
F H
OU
SE H
OLD
S PE
R Q
UIN
TIL
PERVERSEPERVERSE INFORMAL AND FORMALINFORMAL AND FORMAL
Source: Living Standards Measurement Study Survey, 2003
May 2007
• 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.
MICROINSURANCE: A FORMAL MICROINSURANCE: A FORMAL INSTRUMENT THAT MITIGATES RISKSINSTRUMENT THAT MITIGATES RISKS
May 2007
PEOPLE COVERED BY MICROINSURANCE PEOPLE COVERED BY MICROINSURANCE
IN THE WORLD’S POOREST COUNTRIESIN THE WORLD’S POOREST COUNTRIES Millions
67
7,82,6 3,5
ASIA LAC COLOMBIA AFRICA
Source: The Landscape of Microinsurance in the World’s 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.
May 2007
POTENTIAL MARKET SIZEPOTENTIAL MARKET SIZE
1,2%10,2%7,1%2,6%
98,8%89,8%92,9%97,4%
Asia LAC Colombia Africa
BOP % withMicroinsurance
BOP % withoutMicroinsurance
Source: The Landscape of Microinsurance in the World’s 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
May 2007
• 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
TOPICSTOPICS
May 2007
SOCIAL ECONOMIC LEVEL (SEL)
28%
32%
15%
13%
12%
0% 5% 10% 15% 20% 25% 30% 35%
SEL 2
SEL 3
SEL 4
SEL 5
SEL 6
Source: Fasecolda and Remolina – Estrada 2007
May 2007
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 insured’s income flow.
3%
7%
44%
45%
0.2%
1%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0%
Unemployed
Student
Household
Retired
Employed
Freelance
Source: Fasecolda and Remolina – Estrada 2007
May 2007
LOW INCOME HOUSEHOLDS ARE MORE EXPOSED TO RISKS
Frequency with which households suffer losses. Frequency with which households suffer losses.
Type of lossType of loss
12% 65%
65%
55%
46%
32%
13%
26%
35%
44%
65%
8%
4%
8%2%
4%
4%
4%
2%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SEL 2
SEL 3
SEL 4
SEL 5
SEL 6
Always Frequently Sporadically Never Doesn't know
30%
26%
21%
12%
10%
23%
24%
24%
21%
12%
7%
10%
14%
31%
40%
0% 10% 20% 30% 40% 50% 60%
SEL 2
SEL 3
SEL 4
SEL 5
SEL 6
UnemploymentSerious illess / High risk surgeryHouse vehicle has broken down
Source: Fasecolda and Remolina – Estrada 2007
May 2007
72%
67%
61%
66%
72%
23%
28%
31%
30%
27%
1%
2%
2%
1%
1%
3%
3%
6%
2% 1%
1%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SEL 2
SEL 3
SEL 4
SEL 5
SEL 6
Self-owned of family resources Loan with a Financial InstitutionPersonal Loan (with a nonfinancial institution) Insurance bought previouslyProperty was not replaced / Loss continues
HOUSEHOLDS COVER WITH OWN RESOURCES THE MAIN PORTION OF LOSSES
Source: Fasecolda and Remolina – Estrada 2007
May 2007
% OF HOUSEHOLDS WITH 1 OR MORE INSURANCE POLICIES
0%
10%
20%
30%
40%
50%
60%
Funeral rites Property Life
SEL 2 and 3
SEL 4, 5 and 6
INSURANCE BY SOCIAL ECONOMIC LEVEL
Source: Fasecolda and Remolina – Estrada 2007
May 2007
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
2.1%
3.0%
2.1%
1.1%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
SEL 2 and 3
SEL 4, 5 and 6
Insurance Lottery / "Chance" / Gambling
% of households’ annual expenses*% of households’ annual expenses*
* Data corresponds to households that made both expenses.* Data corresponds to households that made both expenses.
Source: Fasecolda and Remolina – Estrada 2007
May 2007
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
13%
12%
11%
8%
5%
6%
9%
7%
8%
8%
43%
46%
57%
67%
73%
31%
24%
18%
10%
3%
4%
6%
5%
7%
10%
4%
3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SEL 2
SEL 3
SEL 4
SEL 5
SEL 6
Luxury ObligationFundamental / basic need Necessary but unattainableNecessary evil S/thing that cannot be understood
*Life, home and vehicle insurance are included. The questions *Life, home and vehicle insurance are included. The questions was asked for a basket of insurance voluntary insurance was asked for a basket of insurance voluntary insurance products which include Life and Property and Casualty.products which include Life and Property and Casualty.
Source: Fasecolda and Remolina – Estrada 2007
May 2007
POOR HOUSEHOLDS UNDERESTIMATE RISK
29%
25%
27%
13%
13%
13%
12%
7%
14%
14%
54%
57%
58%
59%
54%
4%
6%
8%
14%
19%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SEL 2
SEL 3
SEL 4
SEL 5
SEL 6
I am confident nothing bad is going to happen and I assume the risksI am aware of some risks but I don't see it necessary to protect against themI am aware of the risks and protect my self against the most important onesI am aware of the risks and I totally protect my self against them with insurance
Source: Fasecolda and Remolina – Estrada 2007
May 2007
POOR FAMILIES FAVOR MONTHLY PREMIUM PAYMENTS
56%
39%
39%
35%
38%
5%
7%
6%
5%
7%
10%
13%
14%
7%
15%
8%
13%
8%
11%
12%
15%
19%
16%
19%
22%
16%
31%3% 8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SEL 2
SEL 3
SEL 4
SEL 5
SEL 6
Monthly Bimestral Quaterly Half-Yearly Only Payment Not interested
Source: Fasecolda and Remolina – Estrada 2007
May 2007
• 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
TOPICSTOPICS
May 2007
COMPANIES OFFERING MICROINSURANCE
DISTRIBUTION OF COMPANIES IN COLOMBIA
With microinsurance41%
Without microinsurance
59%
EQUITY OWNERSHIP
Foreign50%
National50%
TYPE OF INSURANCE COVERAGEVida e ITPAccidentes de personasIncendio y terremotoDaños, hurto
Workers' Compensation Work Accidents / Professional illness
Funeral rites Funerals
TYPE OF INSURANCE COVERAGETotal and permanent incapacitySerious illnessHome expensesFunerary ritesLimb lossOrgan transplantAccident medical billsHospital billsEducational allowance
Home assistanceElectrical equipmentPersonal accidentsBurglaryLiability insurance
Funeral rites Allowance
Life
Property
BASIC COVERAGE
Life
Property
ADDITIONAL COVERAGES
Source: Fasecolda
May 2007
MICROINSURANCE: ISSUED PREMIUMS
Share of Microinsurance in Total Premiums Issued december 31, 2006
Other insurance95%
Microinsurance5%
Share of Microinsurance by Business LineLife16%
W.C1%
Funerals4%
Property79%
Source: Fasecolda
May 2007
NUMBER OF INSURANCE POLICIES
ISSUED POLICIES (december 31, 2006)
WC2%
Property 60%
Funeral rites24%
Life14%
TOTAL 2,741,656TOTAL 2,741,656Source: Fasecolda
May 2007
PREMIUM AND PAYMENT FREQUENCIES
• Most products have both a monthly coverage and payment frequency
• It provides the insured large flexibility.
Coverage Period
Monthly40%
At maturity5%
Annual55%
Payment frequency
Annual10%
Monthly90%
Source: Fasecolda
May 2007
PRICE OF MICROINSURANCE PREMIUMS
Number of Microinsurance Products According to Monthly Premiums
2
4
5
4
7
Less than $1 dollar
$1 - $2 dollars
$2 - $3 dollars
$3 - $4 dollars
More than $4 dollars
Source: Fasecolda
May 2007
PRODUCT EXAMPLES
USD
Fire, lightning, earthquake and/or flood damages
100% asset value (constructions and contents)
Assistance $ 121,5Monthly premium $ 2,6
PROPERTY MICROINSURANCE
Source: Microinsurance Survey - FASECOLDAMICROSEGURO DE VIDA
(Datos en dólares)
PLAN 1 PLAN 2Life and TPI $ 1.340 $ 2.233
Serious illness (50%) $ 670 $ 1.117Home expenses $ 335 $ 558Funerary rites $ 134 $ 223Monthly premium $ 1 $ 1,7
(USD)
Source: Microinsurance Survey - FASECOLDA
LIFE MICROINSURANCE
Source: Fasecolda
May 2007
LOSS PAYMENTS
Lapse Time Between Claim and Payment
15 days15%
Immediate (funeral rites)
10%
10 days25%
2 days5%
48 hours5%
By accident type (WC)5%
30 days35%
Source: Fasecolda
May 2007
DISTRIBUTION CHANNELS
22%
11%
22%
9%18%
18%
Cooperatives Direct saleMicrofinancial NGO's BancassurancePublic Service Invoices Others
Source: Fasecolda
May 2007
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
May 2007
CONTRIBUTIONS
• The majority of companies don’t receive contributions from NGO’s or government institutions.
• Only one company does.
May 2007
• 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
TOPICSTOPICS
May 2007
• 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
CONCLUSIONSCONCLUSIONS
May 2007
• 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.
CONCLUSIONSCONCLUSIONS