Emerging Insight: Latin America and the Caribbean in numbers
9 November 2015
While a number of in-depth case studies, such as those conducted by the Impact Insurance Facility and the MicroInsurance Centre’s Microinsurance Learning and Knowledge (MILK) Project, have demonstrated that there can be a business case for microinsurance, “The Landscape of Microinsurance in Latin America and the Caribbean: A changing market”, recently co-published by the Microinsurance Network and Munich Re Foundation and written by the MicroInsurance Centre, provides a broader evidence base for the profitability of microinsurance in Latin America and the Caribbean.
With data on premiums, claims, administrative costs, and commissions self-reported by insurers for over 100 products throughout the region, it is the first time that the industry has a large pool of data on the business case for microinsurance (prior studies did not capture administrative and commissions costs). Only a handful of products reported a combined ratio greater than 100%. The key performance indicators break down as:
Claims – 26% average. These ratios – low compared to both those for microinsurance in either Africa (44%) or Asia (79%) – suggest that insurers in the region still are not confident in their understanding of the risk of microinsurance products, leading to substantial loading of premiums. Greater confidence in experience data and additional competition should have the effect of increasing the claims ratios to more traditional levels while still leaving room for profits. Low claims ratios also present an opportunity for insurers to improve benefits for clients.
With data on premiums, claims, administrative costs, and commissions self-reported by insurers for over 100 products throughout the region, it is the first time that the industry has a large pool of data on the business case for microinsurance (prior studies did not capture administrative and commissions costs). Only a handful of products reported a combined ratio greater than 100%. The key performance indicators break down as:
Claims – 26% average. These ratios – low compared to both those for microinsurance in either Africa (44%) or Asia (79%) – suggest that insurers in the region still are not confident in their understanding of the risk of microinsurance products, leading to substantial loading of premiums. Greater confidence in experience data and additional competition should have the effect of increasing the claims ratios to more traditional levels while still leaving room for profits. Low claims ratios also present an opportunity for insurers to improve benefits for clients.
- Administrative costs (excluding commissions) – 25% average. While reported expense ratios are reasonable, suggesting that insurers have found a way to manage or share the costs of provision, there is room to reduce expenses via technology and well-structured distribution partnerships. There is also a clear need to better track and analyze these costs, as this was by far the most difficult indicator for insurers to report.
- Commissions – 21% average. High commissions reflect the market power of distribution channels. It is unclear whether commissions reflect actual costs of distribution plus a fair profit, or whether they include a “premium” for market access.