Alexia Latortue, Deputy Assistant Secretary for International Development & Debt, US Treasury, summarizes the opening session of the day: The Case for Financial Inclusion Now.
Setting the context for microinsurance
Unfortunately bad things happen in life – to people and to businesses. Houses burn down, people get sick, and the cost can be very high. If we don’t anticipate the possibility of these things happening and put money aside little by little, then we are in less of a position to take care of it when something bad does happen.
A focus on micro-insurance
So, with micro-insurance, we’re “helping the poor weather life’s storms” to quote MicroEnsure. And by doing so in a way where costs are shared with many others, there’s solidarity across large pools of people.
Serving the markets of tomorrow
The two panelists for this session – Michel Khalaf, President EMEA, MetLife and Martyn Parker, Chairman Global Partnerships, Swiss Re – are regarded as leaders in the commercial insurance and re-insurance space.
They have built their businesses in rich countries but are now seeing growing middle-income countries, growing middle classes, and saying ‘we need to also serve those markets’ as they are the markets of tomorrow.
Reaching new countries and understanding client needs
Our panel discussion showed that these big companies think they can actually make it work in the emerging economies. There is a firm belief that they are able to reach both these new countries and customers.
I think MetLife’s story is the global footprint: they are present in many markets, with the proximity to understand client needs and to adapt products that they’ve been doing for years to these new conditions.
Products have to be adapted to the needs of a different culture or group of people – so physical presence and proximity is really critical.
The Challenge of Distribution
One challenge that came up was distribution – how to get the actual products out to people. One example is rural areas where people are more spread out in places where the premiums are low and it’s hard to recuperate costs. So it’s a cost and technology issue. It’s about having different kinds of distributors, and then figuring out how to create a chain of partnerships that get you to the client in the most cost-effective way.
The need for an integrated response
Another challenge is to get the development folks, the government folks, and the private sector folks, to all really engage upstream. Diana Taylor talked earlier today about different types of communities coming together – this is a space where communities absolutely have to. Health insurance is one of the most striking, because you can have insurance, but if you don’t have good affordable healthcare it doesn’t work. So we really need these communities to talk together and identify the challenges and understand how they each contribute to the solution.
To see what others are saying and posting about the Global Forum, visit the Financial Inclusion 2020 website and follow #FI2020 on Twitter.
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October 30, 2013 at 3:46 am
Johann van den Heever
You cannot solve a social problem socially. Requesting communities or groups of people to “come together” has been done a thousand times over with little success. Generating products and services to serve the poor is not their responsibility because they are expected to pay for it. It is the service providers responsibility because they are expected to profit from it.
If the giants in insurance really wish to reach the poorest of the poor, they have to think differently about the value of their customers, the effectiveness of distribution and the cost savings required in delivering the product AND its benefits. You have to think how you can deliver FREE insurance for this market and still make a profit to make the effort sustainable. This level of mathematical equations influenced by physical circumstance and emotional stability is beyond most actuaries as their lives are too far apart from the reality of this “new” market. There is a way to do it, but it involves bringing together more than one industry. Each time I have shared it with managers, actuaries, department heads and directors, nothing happened because it involved more than a risk profile and an algorithm. (You can literally see the force field of “Not required for delivery this year.”) In most cases, the individual does not have the incentive or vision to take action.
The world changes in two ways. The first is quick when change is required to save one’s life, the second is slow and with the socially acceptable trend of the time. First, the Insurance industry (and financial industry for that matter) is not threatened yet and therefore will be slow to change. Secondly, massive corporations in general are functionally ineffective and therefore waste more to manage itself as for example a smaller firm. At best, I predict a set of cheap products from the bigger companies. Nothing wrong with that, but the services delivery, product distribution and cost cutting required to serve this market will not happen quickly as it will not make the bottom line in the current corporate structure. Thirdly, what we see in the word today is a combination of individual lives. We as a species fight for ourselves first. Helping the poorest of the poor is simply not in the financial industries general nature.
I say again. You cannot solve a social problem socially, but you can solve it individually and then duplicate on a social scale. That is the nature and socially acceptable method for social solutions. Yet, few financial institutions have developed products for this market yet.
FREE insurance is possible, but you need an open-minded and passionate CEO, then a board that wish to make a difference (massively profitable in the end off course) and a shareholding foundation that understand the value and required participation of the bottom billion for life as we know it to exist.
The answers are simple and the same for all industries (Food, Housing, Sanitation, Education, Security, Financial Inclusion etc.), but are the privileged amongst us ready for the change? Honestly, I think there are a few, but to reach them is a different matter entirely.
Best of luck for the event.
Johann van den Heever (CEO: Heever Solutions)
January 27, 2014 at 1:46 am
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