The Role of Insurers and Re-insurers in Supporting Insurance to the Poor

Abstract

In his address to the Micro-insurance Conference sponsored by the Munich Re Foundation in October 2005, Hans-Jürgen Schinzler1 offered his perspective on why commercial insurers and re-insurers were infrequent players in the low-income market: "Premium income is low, administrative costs are relatively high, and infrastructure for insurance is lacking; that's why commercial insurers have not taken more interest in this market." This candid statement suggests that if premium income were high and administrative costs were relatively low, and the infrastructure for insurance were improved, commercial insurers and re-insurers would take more interest in this market. This raises two issues: first, what is the value proposition of commercial insurers and re-insurers for micro-insurance schemes and the market of low-income clients? Secondly, as improvements on all three counts are more likely to evolve over time than to occur through a "big bang", what part(s) of this value proposition can insurers and re-insurers deliver during this evolutionary process? This chapter proposes a few answers to these questions. The answers might differ according to the business model. This chapter focuses mainly on the role of insurers and re-insurers in supporting community-based insurance schemes that operate the mutual model, namely communities of individuals that bear the insurance risk and operate the scheme. The provision of much-needed reinsurance, training and technical support to these micro-insurers is a key challenge for the development of micro-insurance. This chapter refrains from dealing with micro-insurance arrangements in which NGOs distribute insurance products but do not underwrite the risk (the partner-agent model), because these grassroots organizations are already associated with a specific commercial insurer. That insurer may or may not cede risks to reinsurance depending on ceding decisions that are not specific to the agent. This chapter is inspired by the attitude that commercial insurers and re-insurers can capture viable business opportunities from a wider penetration of insurance in low-income settings, and that these opportunities justify the investment in micro-insurance schemes because of their potential to serve as change agents in low-income communities.

Keywords: micro health insurance, social insurance, insurance for the poor, community based health insurance, health financing