Microinsurance has gained an increasingly high profile in recent years across East Africa. But how big is the microinsurance market? What role do commercial insurers play? And how can they make a profit in difficult and remote environments, often with little culture or experience of insurance, where premiums are necessarily very low?
Despite the substantial involvement of non-commercial providers in the microinsurance market, including community-based, informal and mutual schemes (particularly in the areas of health and life cover) and international organizations, donors, NGOs and governments (particularly in the areas of education and capacity building), the main suppliers of microinsurance in all areas except health are commercial providers. Most international insurers and reinsurers are already involved in the microinsurance market and several have established specialist microinsurance units at their head offices.
A report produced by Lloyd's 360 Risk Insight and the Microinsurance Centre estimated the potential size of the microinsurance market (which can be defined for this purpose simply as insurance aimed at the low income market) to be between 1.5 and 3 billion policies globally, with products including health, life, agricultural and property insurance and catastrophe cover. However, back in 2009, the same report put coverage at only around 135 million people globally, only 5% penetration of the estimated market.
Within Africa, the market is at an even earlier stage, and a study by the Microinsurance Innovation Facility put market penetration at only 2.6% of the population living under US$2 per day. Nevertheless, the number of people in Africa covered by a microinsurance policy increased more than 80% between 2005 and 2010, with annual growth rates at over 10% in some countries.
Coverage is by no means uniform; the current African market is concentrated in certain geographical areas and dominated by certain products. In particular, credit life cover currently accounts for around 30% of all policies both globally and within Africa (followed closely by term life cover and then health, with agricultural and property insurance currently making up only a fraction of the market). This can be explained in part by the fact that credit life is typically a compulsory accompaniment to a microfinance loan, and that both credit life and term life cover are significantly simpler to provide and administer, with lower fraud risk and assessment...