Sustainability 2014Sustainability at Allianz: InsurerMicroinsurance

Microinsurance

Service & Contacts

Allianz4Good

Allianz SE
Königinstraße 28
80802 Munich, Germany

Send email

Allianz warmly invites all stakeholders to provide feedback to and comments on this Sustainable Development Report.

Give feedback

A detailed glossary of terms and acronyms used in this Sustainable Development Report

Learn more

  • Contact

  • Feedback

  • Glossary

Allianz- Our microinsurance products offer an affordable way for low-income people in developing countries to better protect themselves against risks.

Our microinsurance products offer an affordable way for low-income people in developing countries to better protect themselves against risks.

The people most vulnerable to risks associated with natural disasters, accidents and illness are those with low-incomes, living in developing countries. Microinsurance offers an affordable way of protecting against these risks, with premiums that start from as low as €1 a year.

 

Although the global market for microinsurance is still immature, it has an estimated premium potential of US $40 billion a year.1 Allianz already provides millions of people with microinsurance, but we anticipate that demand will continue to grow, and so we are expanding our business in this area. We currently cover more than 44 million people, mostly in Asia, but increasingly also in Africa and Latin America. We design our product portfolio to offer genuine added value by addressing the risks our clients actually face, with products ranging from life insurance and savings plans to crop insurance.

 

1 Swiss Re, 2010, Sigma 6/2010 "Microinsurance Risk protection for 4 billion people"

  Microinsurance delivers financial and social returns

Microinsurance delivers a so-called ‘double bottom line’ – providing both financial and social returns. Social returns include protecting vulnerable people, especially those on low incomes, and expanding financial inclusion. Market research conducted in 2013 with our microinsurance customers in the Ivory Coast, India and Indonesia shows that for 75% of these customers their microinsurance policy is their first insurance ever.

It is important that policyholders have a positive experience with our products.  We therefore conduct market research through focus groups to assess product demand and determine customer value in specific markets. This enables us to adapt existing offerings and develop new products accordingly.

Allianz is proactively pursuing a 'growing with the customer' approach. For example, we offer additional voluntary options to the often mandatory basic life insurance policies that come bundled with third-party credit or savings products. Our optional coverages insure against such things as the risk of hospitalization costs or accidents.

Although financial returns from microinsurance are lower than from traditional products, we believe that satisfied policyholders will bring a mid- to long-term pay-off, as many of them move up the economic ladder and are able to purchase regular Allianz products. The global middle class is estimated to grow from 1.8 billion in 2009 to around five billion by 2030, with growth mostly in our primary microinsurance markets of Asia, South America and Africa.2

 

2 OECD 2010, Working Paper No.285 "The emerging middle class in developing countries"

  The challenges of microinsurance

Microinsurance has a number of challenges which we systematically address to unlock its full potential.
 

  • Profitability: The low premiums paid for a microinsurance policy mean that we need to manage our microinsurance business carefully in order to generate adequate financial returns. It also means microinsurance can only be profitable if large quantities of standardized products are sold through uniform processes.

    Therefore, we only offer microinsurance in markets with efficient distribution partners and an Allianz subsidiary to manage and administer the business locally. We currently offer microinsurance products in eleven countries. The Group-wide approach to microinsurance is coordinated by our head office in Germany, which provides consultancy services and shares best practices. We also work closely with specialist organizations that have a large outreach among low-income populations, and have built trust in these areas.  These organizations include large microfinance institutions, commercial banks, telecommunication operators, retail chains and cooperatives.

    We have an important partnership with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), a German federal enterprise with expertise in sustainable development. This public-private partnership was established in 2010 and supports our overall approach to microinsurance.  The focus of the partnership up to 2017 will be on market development, building better global databases, and financial literacy.
     
  • Financial literacy: Illiteracy, especially financial illiteracy, and a broad lack of understanding of how insurance works, are common in countries with the highest microinsurance potential. We are investing in financial education to help overcome the challenge of financial illiteracy. Examples include demonstrating the value of insurance to illiterate and low-income people through public claim payment ceremonies, insurance simulation games, comic strips and videos. We also have financial education programs linked to microinsurance that not only help to enhance financial knowledge around insurance, but also other financial topics such as savings and budgeting. These initiatives help to build trust, and thereby strengthen the foundations for our microinsurance business.
     
  • Awareness: In addition to low general awareness of how insurance works, our market research shows that only 73% of our microinsurance policyholders are aware that they are insured. This is because most of our microinsurance products are sold as a mandatory add-on to the microcredits that are provided by our microfinance distribution partners. The credit is naturally the main focus of the customer and therefore the bundled insurance is often not fully understood and appreciated.  Significantly fewer customers, just 8%, are aware that their insurance provider is called Allianz. Most customers actually think the insurance comes directly from the distribution partner. This is not surprising when our main distribution model is through such third parties. Our customer awareness videos, created in 2013, highlight these issues.

    We are working to launch more voluntary products that require microinsurance customers to consider the pros and cons of insurance and thereby make a conscious purchasing decision. This process aims to help increase the awareness of insurance and the benefits it can bring.
     
  • Risk assessment: Risk assessment for insurers in the low-income market remains difficult, as reliable historical data is limited. This needs to be improved through increased market research that will deliver a better understanding of local markets and customer needs. Life insurance is the easiest type of microinsurance to adapt to meet local requirements, however microinsurance covering health, crop, property and catastrophe risks requires significant local knowledge to ensure products are tailored to local needs, efficient to monitor and administer, and costs for insurers are kept low.

    As our microinsurance business grows, our experience and the availability of real-life data also increases, which leads to improved products and more accurate pricing. Working with highly experienced partners, such as GIZ, helps with our understanding of risk. We also coordinate closely with our distribution partners, who sell our products and have a day-to-day relationship with our customers.

  Our microinsurance values

The knowledge and experience offered by GIZ helped us to develop our four guiding values for microinsurance. These values call on us to deliver:
     

  1. passion to serve the low-income market segment;
  2. quality in products and processes;
  3. fairness in pricing and customer treatment; and
  4. transparency of our microinsurance approach, both to policyholders and the general public.

We want to apply these values to all of our microinsurance products and regularly conduct assessments on whether our products comply. 

  Defining microinsurance and assessing our products

Together with GIZ we published an industry-first operational definition for microinsurance in early 2012. The definition, consisting of four criteria that a microinsurance product must fulfill, allows us to clearly identify and report on these products in a consistent and transparent way. Using this definition, we launched an assessment tool, based on seven quality criteria, that shows to what extent a microinsurance product complies with our microinsurance values.

We annually screen all relevant markets with this tool to identify and then assess our microinsurance products. Details on all assessments are made available on our website. Through this process, we can identify which products work well, and also take action on those that do not meet expectations.

  Measuring social and financial performance

Through our partnership with GIZ we also developed and started to monitor a set of KPIs to measure and better control the financial and social performance of microinsurance. For example, we use the claims ratio of microinsurance products as an indicator, which shows the percentage of premiums collected for a product that is returned to customers in the form of claims payments.

A claims ratio of 50-60% – the average figure for our microinsurance products – is generally considered to indicate good customer value while leaving an adequate return for the company. The higher the claims ratio, the better the customer value. A claims ratio above 100% is too high and signals that the product is not profitable.

There is always more work that can be done to establish a fuller picture of our microinsurance performance. This includes systematic documentation of service levels to our policyholders, such as how fast claims are paid, and customer education measures, such as how many customers have benefitted from comprehensive customer education, by which methods and with what effect. We also need to understand better how our microinsurance business is growing in relation to the socioeconomic growth of our customer base, in order to take advantage of the business opportunities that arise as and when they are able to become regular insurance customers.

To help us measure and control the financial and social performance of microinsurance, we monitor two KPIs:
 

  • Number of insureds
  • Gross written premiums

We are transparent with our performance in these areas, and in addition publish the indicators half-yearly on our microinsurance overview website.

Allianz Microinsurance around the world

Overview

Insured Lives 31-Dec-2014: 44.6mn
Premium 2014: €113.7mn
Micro start year: 2004
Distribution partners: 576
Products: Cattle, Credit Life, Crop Index, Funeral, Home Business, Hospitalization, Life & Savings, Motorcycle, Personal Accident, Term Life

(Click on the blue countries to read country-specific information)

Videos:

Global claim stories

Customer Awareness Interviews

Cyclone India

Insurance Game

 
Other resources: Business update reports, Product Pool, Microinsurance Definition & Assessment Tool

  Achievements 2014

 

Microinsurance

 

As of December 31, 2014

2014

2013

20121

Gross Written Premiums (€mn)

113.7

86.1

78.6

Thereof from non-consolidated entities (i.e. India)

89.3

62.5

55.2

No. of in-force insured people (mn)

44.6

26.12

17.1

Thereof from non-consolidated entities (i.e. India)

39.8

22.72

14.6

 

2014 was another year of strong growth for our microinsurance business. While we continued to offer microinsurance in 11 countries in Asia, Africa and South America, the number of people insured grew by 70% to 44.6 million and gross written premiums (GWP) increased by 32% to €113.7 million. Growth in the number of people insured outgrew GWP for two reasons. Firstly, growth in number of insured was strongest in the group term life category, which carries particularly low premiums of around €1 per year. Secondly, one product in India that combined savings and insurance has been phasing out since in 2013 due to regulatory changes. This product, which has a five-year policy-term, carries relatively high average premiums of €25 per year. Due to the phase-out, renewal premiums from this product have been gradually declining. The number of microinsurance products we offer remained stable at 18. Two new products were introduced: weather-based index insurance in India and mobile term life in Burkina Faso and Madagascar, and two products were stopped: personal accident in Colombia and mobile personal accident in Madagascar.

 

1 KPMG AG Wirtschaftsprüfungsgesellschaft has provided limited assurance on the 2012 microinsurance performance information as well as the following indicators: number of in-force insured people and Gross Written Premiums. Allianz undertook data assurance on microinsurance to see how our reporting would measure up against external checks. We have not conducted data assurance on our microinsurance data since then; however our reporting processes follow the same and partly improved internal standards. For more information on our microinsurance data, please read the explanatory notes.

2 2013 figures were adjusted for error corrections. After the revamp of the group term life product in India in July 2013, new enrollments under the old product that was still running were not included in the number of insured count until year end. For 2014, this error has been corrected. Premium volumes have not been affected and remain unchanged.

Regions in detail

 

  • Asia: India has again been our biggest growth market, with the number of people insured growing by 75% to 39.8 million. Premiums also saw a strong increase from €62.5 million to €89.3 million. This increase was almost exclusively driven by the introduction of a new weather-based index product as part of the government-subsidized Weather Based Crop Insurance Scheme (WBCIS).

    Indonesia also experienced strong growth, with the number of insureds growing 46% to 3.8 million. In Malaysia, business development through our only distribution partner, Malaysia Post, was again challenged by increasing competition. This led to a drop in the number of personal accident insureds from 250,000 to 150,000. However, as the main premium driver in Malaysia is motor third-party liability, which continued with strong sales, the overall GWP in Malaysia slightly increased from €9.8 million to €10.0 million.
  • Africa: Overall, Africa showed a healthy growth in the number of insureds from 350,000 to 560,000. This growth was mainly driven by the launch of a new mobile term life insurance scheme in Burkina Faso and Madagascar, with over 120,000 people registering in the first six months. However, the African GWP decreased slightly from €3.7 million to €3.6 million, mainly due to the slowdown of a major distribution cooperation in the Ivory Coast.
  • South America: Colombia saw a slight increase in premiums from €9.1 million to €9.3 million and in the number of insureds, from 260,000 to 290,000 insured, due to organic growth.

  Key activities in 2014

To learn more about our 44.6 million microinsurance customers, in 2014 Allianz launched the “Life Stories Awards” In this project, teams of journalists and photographers selected Allianz microinsurance customers to create biographic portraits. A jury then chose the best three portraits for the first-ever “Allianz Microinsurance Life Stories” Awards. 

As part our commitment to evaluate the social value-add of microinsurance, we conducted two reviews of customer claims experience in 2014 - one on agricultural index-insurance in Burkina Faso, and another on credit life insurance with extra funeral payouts in Indonesia. Both studies were supported by GIZ and executed by the Microinsurance Centre.

The review in Indonesia showed that the beneficiaries of credit life insurance payouts were better off than the families of borrowers who left their debt behind uninsured. It also showed that when insuring female microloan borrowers, there was greater social impact when their husbands were also insured, especially since men are still the main breadwinners in Indonesia. Allianz Indonesia is now developing a voluntary term life product with which female microloan borrowers can insure their husbands. Read the full report here.

The review in Burkina Faso showed that following a drought in 2012 insured farmers suffered from greater financial distress than uninsured farmers. While this was both surprising and disappointing for Allianz, the independent researchers came to the conclusion that this was due to a number of factors: high complexity of the product, lack of product awareness and unrealistic expectations of the payout. The latter led insured farmers not to diversify their risks in comparison to the uninsured farmers, making them more vulnerable in the case of a drought.

Based on these findings, Allianz now aims to sell these more complex products to aggregator organizations such as cooperatives or banks, rather than to farmers directly. Aggregator organizations generally have a better understanding of what agro-index insurance can and cannot protect than individual farmers, and could use such insurance to protect their entire loan portfolio against weather risks. In case of farmer loan defaults due to droughts, money would quickly be at hand for loan renewals and emergency loans. Read the full report here.

  This could be interesting for you

Allianz-We offer our customers green products and services, which mitigate the negative effects of climate change or take its environmental impact into account.

Green solutions

We offer our customers green products and services, which mitigate the negative effects of climate change or take its environmental impact into account.

More...
Allianz-Again and again droughts sweep through the African continent and millions in Sahel desert face food crises. As an attempt to improve small farmer’s resilience, Allianz has worked on providing micro crop insurances to farmers in the Sahel.

Crop insurance in the Sahel

As an attempt to improve small farmer’s resilience, Allianz has worked on providing micro crop insurances to farmers in the Sahel.

More...
Allianz-Since many people depend on agriculture to survive, droughts and floods often have drastic effects.  Allianz strives to find specific answers to these challenges. In early 2012, Allianz Re became a partner in RIICE.

Partnership to protect smallholder farmers from risk

Many people depend on agriculture to survive, droughts and floods often have drastic effects.  Allianz strives to find specific answers to these challenges.

More...