At OpenUnderwriter, we have been attracting a lot of interest from the microinsurance market.
The reasons behind this are to do with the benefits open source offers, including the use of best of breed technology combined with no associated licensing fees.
This interest has driven us to start investigating how we can best serve the market, so we are now working with experts in the field to design and develop an open source microinsurance solution based around OpenUnderwriter.
What is Microinsurance
Microinsurance is an extremely exciting, relatively new development in the insurance industry. It is a form of insurance designed to protect those around the world on very low incomes from the risks they face in life which can, and often does, lead to a fall into poverty from which they cannot recover.
Due to the nature of the microinsurance market, any solution needs to be cheap, flexible and requires new, innovative ways of thinking when it comes to distribution.
A major consideration for low income households is that premiums must be kept to an absolute minimum, a few cents a day for life insurance is not uncommon. Small premiums are achievable by keeping the insurance products and processes as simple as possible, maintaining focus on the needs of the market being targeted, whilst maximising distribution.
The communities to whom microinsurance is aimed typically have no access to mainstream insurance services, so they have no previous experience of the benefits insurance can provide. This also means they have never had the opportunity to develop any form of relationship or trust with insurance companies and so a process of education is required. Demonstrating the benefits takes time, so working with individuals and organisations already trusted by these communities can provide a good platform to encourage policy take up.
The World Health Organization (WHO) says 3.2% of Indians will fall below the poverty line because of high medical bills, with about 70% of the population exposed to such a risk (Source The Times of India).
To put that statistic into perspective, 3.2% translates to over 39 million people who will fall into poverty because of medical bills (equivalent to over half the UK total population), whilst 70% translates to nearly 850 million people for whom microinsurance could provide security (well over double the US population). It is these people microinsurance is designed protect.
We are now working to extend the functionality of OpenUnderwriter, to help organisations target microinsurance specific markets and manage those insurance products. As part of this work we have partnered with the German Gesellschaft für Internationale Zusammenarbeit (GIZ), the Ghana Insurers Association (GIA) and the Ghanaian National insurance Commission (NIC) to deliver a national, industry wide data repository called the Ghanaian Insurance Industry Database (GIID). The initial focus of the GIID is to offer data suitable for actuarial analysis, this will enable the industry to build up its actuarial capacity and develop pricing models that more closely reflect market risk. Additional facilities are also planned to help the industry tackle fraud.
The GIID will provided the insurance industry in Ghana, for the first time, market wide risk data including existing policy risk information, claims information and any other useful data relating to market risks. One benefit for example will be the development and provision of Ghanaian specific mortality statistics, enabling insurers to develop life products that reflect the needs of, and are priced appropriately for, families who have never previously had access to or enjoyed the safety net of insurance.
With high quality data, insurers will be able to write sustainable business for all sorts of classes, from crop protection to medical cover, flood to fire damage; the reach of insurance will be much greater than ever before, and those poorest communities and families will start to see real benefits. Of course introducing actuarial capability will not only benefit microinsurance, the GIID will help the entire industry develop more robust and stable business models.
A final, but important note about microinsurance, is that it is not about short term profiting from the sales of insurance policies, it is about helping communities and households create sustainable levels of financial security, where perhaps state help is not available or adequate. Undoubtedly there are profits to be made, but the scales and efficiencies required to achieve this will take time to accomplish. Any organisation entering the market should only do so with a long term view in mind.
About the Author
Matthew is a founder of OpenUnderwriter and has over 20 years’ experience working in the Insurance sector. He has extensive experience in delivering complex solutions in both general and commercial lines for Lloyds and London markets working with companies such as Talbot Underwriter, Brit and Catlin. Matthew has been at the forefront of the design and overall direction of the OpenUnderwriter suite of products. Matthew is also an active member of the microinsurance community and has been involved in a number of major projects in developing countries across the world.