September 15th, 2010

MicroInsurance: A Market with Untapped Potential

Posted at 1:00 AM ET

keeling_henry_141x141Henry Keeling, CEO of International Operations

In 2008 Guy Carpenter was awarded an Innovation Grant by the Microinsurance Innovation Facility to develop risk transfer capacity for microinsurance risks throughout the developing world. Since then, Guy Carpenter has worked tirelessly with microfinance institutions (MFIs), insurers and reinsurers worldwide to narrow the gap between microreinsurance market supply and demand.

In early 2010, Guy Carpenter was successful in completing our first commercial microreinsurance transaction. This was an industry first in terms of size, scope and structure as it represented the largest broker-market transfer of microinsurance risk in history. This program helped secure much needed capacity for five Indian insurers and helped support their respective shares of a state sponsored critical illness program covering 13 million low-income families in Southern India.

With this transaction finalized, we are pleased to announce the attainment of our Innovation Grant criteria several months ahead of schedule. This positions Guy Carpenter and its GC Micro Risk Solutions group to continue pioneering the development of pro-poor micro(re)insurance solutions to address a wide range of risk management problems throughout the developing world. Guy Carpenter is actively working with dozens of clients, partners and prospects to develop viable and sustainable microinsurance programs using commercial reinsurance products and services as a catalyst for innovation and growth.

Our success in developing and supporting such programs relies upon broader work we are doing to build an enabling infrastructure within the commercial reinsurance marketplace. That infrastructure will readily support the secondary transfer of microinsurance risks and the associated expansion and improvement of multiline microinsurance products.


Presently MFIs, broadly defined as any organization offering microfinancial products and services, do not have ready access to the commercial (re)insurance market and vice versa (see graph). The solution to this problem will bring benefits to commercial (re)insurers, MFIs and low-income beneficiaries.

Micro(re)insurance - A Moral and Economic Imperative

The world’s low-income population is estimated at four billion people and the majority of these individuals lack access to crucial financial services, including insurance. We see microinsurance as an opportunity to create social good while also presenting the industry with a commercial opportunity of unprecedented size and scope. According to the IFC and the World Resources Institute the poorest four billion people worldwide represent a USD5 trillion market.

Even with this tremendous market potential, microinsurance penetration in the developing world remains minimal to date. Only an estimated 135 million individuals had access to microinsurance in 2009, though this figure is growing at a brisk pace with new programs and innovations emerging daily.

Never before has the (re)insurance industry been confronted with an opportunity for new business of such magnitude. Never before have commercial (re)insurers faced such an opportunity to do such good for the global community at large. While the challenges associated with accessing this market remain formidable, they are by no means insurmountable.

Micro(re)insurance…Accessing an Exciting Market

Accessing the microinsurance market in an efficient and effective manner will require many commercial (re)insurers to develop new platforms and business models. Fastidious attention must be paid to the volume and quality of distribution, per-policy administration costs and the demand/utility of a given product in the target market. If these key factors fall out of balance, sustainability, indeed profitability, will not be achievable.

In our experience, the most oft cited reason for a lack of a micro(re)insurance underwriting capability is a lack of expertise or experience. Retaining a dedicated advisor like GC Micro can help supplement a lack of internal capacity and be an excellent way to develop a functional micro(re)insurance platform. Commercial (re)insurers with excess capital might consider an investment in Microinsurance. It’s proving to be an exciting new marketplace that could have a dramatic influence on your balance sheet and the welfare of new clients.

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