Business Case for Microinsurance Part II: Follow-up Study on the Profitability of Microinsurance

This paper studies the financial experience of a variety of microinsurance initiatives to see what drives profitability. The research follows the financial experience of six insurers over three years (2009-2012), looking at changes to some of their microinsurance initiatives to provide new insights on three drivers of profitability: achieving scale, controlling claims costs, and managing expenses. The paper makes the following observations:

• Increasing business volumes and sustaining them are important factors in making a microinsurance initiative viable;
• Research indicates slower growth in microinsurance business over time. This is because of challenges with sustaining growth in voluntary products, balancing the servicing of existing policies with the generation of new sales, and dealing with increased competition in certain markets;
• Increased competition has been a challenge to business growth and profitability for the Kenyan, South African, Filipino, and Indian insurers although it is encouraging that microinsurance markets are developing in these countries;
• Working with partners and existing groups is a key factor in achieving scale and managing the costs of distribution and administration;
• As far as loss-making products are concerned, the most effective way to transform financial position has been to reduce claims costs.