> Posted by Amanda Lotz, Financial Inclusion 2020 Consultant, CFI

Microinsurance matters, especially as we see an increase in climate change related disasters.

On October 28, Alexia Latortue of the U.S. Treasury moderated the opening plenary of the Financial Inclusion 2020 Global Forum featuring two leaders in microinsurance, Michel Khalaf of MetLife and Martyn Parker of Swiss Re. One of Alexia’s remarks at the Global Forum deeply resonates with me today: “The occurrence of a risk event can set a family back an entire generation.” Among other things, she suggested, there are new and emerging risks linked to climate change.

Shortly after the Forum, we saw haunting evidence of this. On November 8, Typhoon Haiyan devastated much of the Visayas region in the Philippines, with the city of Tacloban being the hardest hit. Typhoon Haiyan is a reminder of why we must prepare to face natural disasters. Microinsurance is one form of advance preparation that can prove instrumental in the disaster rebuilding stage.

In a disaster prone country such as the Philippines, where over 41 percent of the population lives on under $2 per day, ensuring greater access to microinsurance could make an enormous impact. In the country’s rural areas, which encompass roughly half of Filipinos and about 80 percent of those living in poverty, agriculture is the primary source of income. Government data from 2009 indicates that poverty among fishermen is at 41 percent, with farmers close behind at 36 percent. Think about the opportunities for providing microinsurance to farmers and fishers, whose livelihoods and families depend on productive land and assets that can be tremendously affected by weather!

What does the microinsurance industry look like in the Philippines? Of nearly 97 million Filipinos, only 8 million are covered by microinsurance, according to a report released in April by the Asian Development Bank (ADB).

Several organizations and providers are working to address this gap and the 8 million figure represents a rapid rise in recent years. In 2008 only 3 million individuals had microinsurance. MicroEnsure, for example, offers calamity insurance for retailers as a part of its “Triple 10” package. The product costs 205 pesos (about US$6) a year and provides life insurance, burial assistance, medical reimbursement, and fire and calamity assurance of 10,000 pesos each. This service fulfilled claims of Filipino clients in response to both Tropical Depression Maring and a monsoon this August. For more on calamity insurance in the Philippines, see this note prepared by the MicroInsurance Centre’s MILK Project.

The Philippine Development Plan (2011–2016) suggests the government’s willingness to further innovate and reform in order to increase the reach of financial services through the promotion of inclusive finance. However, as indicated in the ADB report, there’s more that the government can do. The report specifically points to the following:

  • Address remaining regulatory challenges and build the capacity of the country’s Insurance Commission
  • Promote the innovation of products that address more than one risk
  • Harness public-private sector partnerships
  • Promote the development of climate change-linked microinsurance products

This last point is most intriguing to me. The government could encourage competition among providers to develop innovative products linked to climate change and disasters, as this market is largely untapped. Perhaps it could increase foreign investment, particularly in light of the opening represented by new legislation that allows foreign investors to own up to 60 percent equity of rural banks.

The microinsurance industry is looking for ways to help low-income Filipinos rebuild and prepare for future disasters. How can they tap into this underinsured market and more effectively reach the poor?

Image credit: Mans Unides

Have you read?

The Philippines Wants to Be First. Can It Get There?

How Financial Literacy Can Help Build the Market for Microinsurance

A Smoother Road to Building Quality Insurance at Scale