The fact that the insurers have been challenged by a negative image has not hampered their efforts to enjoy a relatively stable financial performance over the years, but thanks to the advent of microinsurance, insurers now have an opportunity to enjoy a positive reputation by entering this new market, say analysts.
The popularity of the microinsurance vertical is causing insurers to reconsider both their value proposition and the markets they serve.
According to LeapFrog Investments, a firm that, in an effort to support down-market growth and expansion of insurance products and inclusive financial services, invests in businesses that extend and enhance security to the poor and financially excluded, there is vast unmet demand in the worldwide market for insurance. Lloyds’ Insurance in Developing Countries Report estimates the number of people who are underserved by insurance to be 1.5 to 3 billion, and the World Bank puts that number at 2.3 billion (below). There are 135 million people currently being covered by microinsurance, notes LeapFrog.
Today, India, Brazil and Mexico are countries in which microinsurance has the greatest growth potential, according to an Accenture report released entitled “Succeeding at microinsurance through differentiation, innovation and partnership.”
According to the Accenture report, several diverse trends are overlapping that boost demand for risk protection among low-income consumers, businesspeople and farmers, and to encourage the development of suitable products and effective operating models:
Finally, an increase in demand for insurance and the emergence of an environment conducive to its purchase has resulted in insurers’ turning their attention to developing markets. Further, Accenture notes that insurers are ramping up to enter this new market, challenged with rapid development of innovative products, distribution channels and enabling technologies essential for competing in developed markets.
In its evalution of the growth opportunities for microinsurance, Accenture studied 11 developing countries, analyzing several key factors such as the base of the economic pyramid (BoP) (those individuals at the poorest end of the spectrum, yet not reliant on government support), based on size and composition of the population who lives with less than $8 per day, the current microinsurance market penetration, the existing number of microinsurance providers, and governments’ support and business environment for microinsurance initiatives. The report indicates that India, Brazil and Mexico also present attractive opportunities:
“In fast-growing economies today’s low-income customers may soon become tomorrow’s premium prospects,” said Madhu Vazirani, a senior manager in Accenture Research and co-author of the report. “And products like microinsurance, which seem at first glance to offer modest financial returns, may in the long run prove to be important contributors within the carrier’s broad portfolio.”
In the past, a company’s portfolio was not looked upon as being anything but a profit-maker.
“The reputation of Corporate America in the United States has suffered,” Raj Sisodia, chairman, Conscious Capitalism Institute, told attendees at a user conference last year hosted by technology solutions provider MajescoMastek. “We believe that to be successful in the future, companies will have to exemplify a more conscious way of being.”
Sisodia pointed to his organization’s tenets—higher purpose, stakeholder orientation, conscious culture and conscious leadership—offering the examples of the efforts of retail firms such as Whole Foods, which works directly with farmers to deliver natural foods to the marketplace, and the stewardship efforts of REI.
“A great business maximizes 'total value created' on a sustained basis and distributes that value in an equitable and enlightened manner among all of its stakeholders,” he said. “Such businesses enhance the overall health and well-being of society.”
Sisodia agreed that microinsurance could fit the conscious capitalism ideal. “According to a 2009 Gallup study, big business was the societal institution least trusted by Americans at 16 percent (Congress was at 17 percent),” he said. “It’s clear that the purpose here would be a definitive statement about the difference you're trying to make in the world."
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