World Bank / IFC Global Insurance Conference 2011 Developing Insurance in the Face of New Challenges June 1 – 2, 2011 Washington, D.C. Rolf Hüppi

Increasing sustainable (Re-) Insurance Markets in Emerging Economies 2 INTRODUCTION Local and international insurers are extensively present in emerging economies but, -the industry needs to adapt new business models to effectively serve these markets Lower income and poor people - the Majority - need financial protection, however, -barriers for them to access providers must be overcome All measures towards facilitating financial inclusion contribute to the market expansion

The Insurance Industry in Emerging Markets The local and international insurance companies are well implanted. They address the conventional markets. According to a a study published by Swiss Re: –The market penetration (insurance premium as %-age of GDP) is low; from less than 1% to 3% of GDP (versus 5% to 10% for industrial countries) –The market density for life insurance (premium per capita) is – in emerging economies - on average less than US$ 50 compared to some US$ 2’000 in industrial countries Traditional insurers serve –The formal economy –People who are wealthy, in upper middle-income sectors and educated –People who are banked or less than 40% of people and 10% of businesses 3

4 Microinsurance through aid/government support Microinsurance market (commercially viable) Medium to high income  $4/day  $2/day  $1.25/day Conventional Insurance market 2.6 billion people US$ 33 billion market 1.4 billion people US$ 7 billion market Source: Swiss Re Sigma No. 6/2010 Microinsurance – risk protection for 4 billion people Poverty line Potential Market Size of Global Microinsurance According to World Bank statistics some 4 billion people are in lower income and poor sectors Insurance solutions for them represent a potential market of US$ 30 – US$ 50 billion Some 2.6 billion people represent a segment that is commercially viable for the insurance industry Innovative schemes for the poor through Public Private Partnerships are possible The potential is easy to see but difficult to realize

Vast underserved Markets Traditional insurance products and services are not available or are not suitable for: –Some 70% of people (who are in the middle or lower income sectors, poor or very poor) –Some 90% of all businesses (formal and informal) The „Majority“ is underserved or not served at all Why? –Do people of the Majority need insurance? –If so, what barriers do they face? –What are the key challenges for the insurance providers? –How can market penetration and density be increased? 5

The Majority needs and wants Financial Protection People of the Majority need financial protection as much as you and I do – or more! –They need to shield themselves from economic shocks –Insurance may be their only asset in case of need –Financial protection is an important element of financial inclusion –Insurance protection is the cheapest form of capital They define their financial protection needs, in order of priority, as: –Health related insurance –Life and funeral expense insurance –Savings insurance –Property and agricultural insurance 6

The Majority faces Barriers in accessing suitable Risk Transfer Solutions Low income and poor people –lack the necessary financial literacy –cannot access insurance companies –have no financial transaction capability –may not trust an unknown “formal” institution Insurance „is not bought“; it must be sold Products that may be available are not affordable and not responsive to the Majority’s needs 7

The Insurance Industry must overcome Key Challenges 8 Accessing the underserved markets To communicate at the levels of customers and distribution channels Building trust in unfamiliar institutions and in intangible products Designing simple, affordable and reliable products Securing mechanisms for the collection of premiums and the payments of claims The cost of handling small claims Achieving the necessary efficiency to administer small transactions Insurance regulation

(Re-) Inventing the Insurance Business Model Success depends on the ability of providers to create non-traditional, sustainable ways of doing buiness –Microinsurance is not „small insurance“ The needs of the customers must be reflected in –Affordability –Simple products –Clear coverage (claim) triggers –Understandable communication (language and illustrations) –Efficient access and delivery –Convenient collection and payment systems –Immediate claim payments (settlements instead of investigations) Customers can be reached through mass-distribution systems Front-end to back-end integration on efficient IT and processes platforms are prerequisites for necessary low cost operations 9

Some important Developments are supportive 10 Extending banking services to the lower income and poor sectors will play an important role - Correspondent / agency banking - Mobile (phone) banking Public Private Partnerships offer opportunities - Linking insurance with government subsidies to the poor (example: Oportunidades program in Mexico) Insurance regulation is responding (in parts) - Supporting the simplification of products and insurance documentation - Expanding the concept of group sales versus individual policies - Easing the rules on distribution - Requiring insurance companies to serve rural areas (example India)

Sustainable Market Expansion The Insurance Industry can expand market penetration and insurance density in emerging economies through better focus and more innovation All measures to drive financial inclusion are relevant: Banking, Credit, Savings Public Private Partnerships involving Government and Development Agencies are necessary to reach the very bottom of the pyramid Adapting regulatory systems to the microinsurance market for ease of doing business - whilst protecting consumers – is most helpful Allocating capital to new and sustainable provider models will support the market expansion 11

An important Role for Multilaterals Multilaterals, at the juncture of the public and private sectors, can contribute by: Encouraging governments to include private sector insurance schemes in their social subsidy programs Promoting regulatory changes towards adaption of insurance regulations on products and distribution of microinsurance Advancing educational programs on financial inclusion Recommending the inclusion of financial protection solutions in distribution systems when investing in organizations that reach people of the Majority Introducing microinsurance programs to Banking, Credit and Savings investment projects Capitalizing or funding organizations that are focused on micro- insurance and encourage successful models to increase their reach 12

13 The ParaLife Case Study ParaLife  was formed in 2007 (with IFC as one of the investors)  maintains Operating Centers in Mexico (since 2007) and Colombia (since 2009)  is expanding to 12 additional countries of Latin America, starting in 2011  has so far - provided over 1’300’000 of low income and poor customers with financial protection -extended over US$ 250’000’000 of life insurance coverage  projects reaching in excess of 2’000’000 customers by year-end 2011  plans to financially protect over 5’000’000 customer by 2014

14 ParaLife Group Gartenstrasse Zurich / Switzerland Tel: Fax: May 2011 Thank you for your attention