MR Microinsurance_2012_03_29.indd - International Labour ...

Is microinsurance a profitable business for insurance companies?
insurance business and the financial impact of the measures discussed above.
Managing expenses at a business unit or company level permits cross-subsidization
in expenses, which allows the microinsurance initiatives access to the
broader resources of the company, but does not allow the insurer to accurately
assess the profitability of the microinsurance business.
A number of companies assess the profitability of products and business units
by allocating expenses on the basis of premium volumes. Where actual expense
information was not available, this is the approach that was taken in this investigation
(i.e. for all products except Bima ya Jamii and the group funeral product).
This gives an indication of how the insurers themselves assess the profitability of
the microinsurance business lines. However, it is not ideal since insurers have
invested significant resources in developing microinsurance and these costs may
not be reflected in proportional expense allocations.
Microinsurance can experience costs that may not be present in traditional
insurance, in terms of developing relationships with partners and building the
capacity of partners in insurance-related matters. It is therefore important to
monitor expenses more accurately to understand the full costs of underwriting
this business and to identify deteriorations in experience and take remedial
action at an early stage.
All the insurers have ambitious plans to expand microinsurance and devote
future resources to this business. CIC is planning to set up a separate business
unit, introducing an agency force and a high marketing spend on Bima ya Jamii,
which will take a number of years to recover from business profits. ICICI Lombard
is devoting more resources from the insurer to work with community
groups to encourage higher levels of enrolment for the MAS heath insurance
product. ASR is planning to begin marketing individual insurance products. All
these measures are expected to increase the expense base of the microinsurance
initiatives. As business grows and insurers spend more time building and maintaining
the business, it will become increasing important to monitor expenses
relating to microinsurance more accurately.
Organizational structure
The organizational structure of the insurer and the position of microinsurance
business within that structure affect the costs of managing the business and the
support for this business through cross-subsidies from traditional insurance
products.
– Microinsurance is not managed separately from traditional insurance for ICICI
Lombard and ASR. ICICI Lombard allocates resources across the business at a
vertical business unit level (e.g. health business). The costs of microinsurance are
supported by premium income from the same type of business where necessary.
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