Microinsurance Network highlights $41 billion market opportunity

By Rebecca Delaney

Feb 28 - (The Insurer) - The microinsurance market remains a largely untapped opportunity, with a new study suggesting just 12% of the global target population is currently covered by a form of microinsurance, which has a total estimated market value of around $41 billion.

The latest Landscape of Microinsurance survey by non-profit association Microinsurance Network (in partnership with the U.N. Development Programme's Insurance and Risk Finance Facility) called on (re)insurers to invest in the market's development over the long term to reach scale and profitability.

The report found that the number of countries with specific regulation around microinsurance and/or inclusive insurance has increased to 40, with regulation in development in a further 16 nations.

These regulations typically provide definitions of microinsurance, as well as allowing for distribution through alternative channels and establishing customer protection mechanisms.

Among the five countries with the highest levels of microinsurance penetration recorded in the study, four (Peru, the Philippines, Zambia and Zimbabwe) have implemented dedicated microinsurance regulations. Among the top 10 countries, just one (Uruguay) lacks either implemented or developing regulations.

Despite the growing development of regulatory frameworks, the study found that 90% of people globally remain unprotected from various escalating risks, including climate change, health crises, conflict and nature loss.

Yet the number of people covered by the products outlined in the report has increased by 70% over the past three years, reaching 344 million people across 37 countries.

The most recent data shows that microinsurance products generated $6.2 billion in written premiums in 2023, an increase of 50% since 2021.

The Microinsurance Network highlighted that the proportion of people covered by products reported in the survey represents just 12% of the target population (up slightly from 11.5% in the previous study), and just 15% of the total estimated value of the market.

It added that the market for microinsurance in the 37 countries included in the study is estimated at almost 3 billion people, representing approximately $41 billion in premiums.

Use of the reinsurance markets was reported for around 20% of all microinsurance products. Agriculture products were most likely to be reinsured at almost 50%, owing to high volatility and potentially catastrophic claims in the product line, as well as the limited experience most insurance companies have in modelling and pricing these risks.

The report noted that claims ratios tend to improve as products mature, with programs launched before 2017 showing a median ratio of 25%, compared with 18% for those launched from 2017 onwards.

This pattern was consistent across all regions, with the size of a scheme also playing a key role in the claims ratios of the products. For products covering more than 500,000 people, the median claim ratio is 28%, versus 9% for those covering fewer than 500,000 policyholders.

For the first time in the Landscape of Microinsurance study, data was collected on premium subsidies. These were found to play a central role in agriculture insurance, with 58% of products receiving some form of subsidy.

The report concluded by calling on insurers, policymakers and development agencies to expand access and improve affordability and inclusivity to drive long-term market sustainability and close the protection gap.

Insurers specifically were urged to diversify their product offerings to reflect the varied risks faced, as well as to leverage digitisation for cost efficiencies, and to improve claims ratios and payment times. For risks with higher volatility, such as climate risk covers, the report recommended that insurance companies engage in public-private programmes or consortiums with other (re)insurers to share the risks.