Michael J. McCord is Managing Director of the Micro Insurance Center at Milliman and one of the world’s leading experts in developing and managing microinsurance products. In our interview, he gives insights on the field of microinsurance: What does it need to make it effective? What are the most pressing challenges? And what can actuaries learn from this field?
Your vision as MicroInsurance Centre at Milliman is a world in which 3 billion low-income citizens gain access to high-quality risk management products. How close are you to this aim?
It is a big vision – estimates suggest there are currently close to half a billion people covered by microinsurance products (insurance products that are intentionally designed to meet the needs of low-income populations), but there is no real way to determine that number.
Not only do we want to get 3 billion people covered, we strive to get them covered by good microinsurance products. Such products and the processes that surround them are what we call S.U.A.V.E. Good microinsurance is Simple, Understood, Accessible, Valuable, and Efficient. SUAVE requires a paradigm shift for insurers and creates a solid platform for microinsurance development, provision and servicing.
What is needed to make microinsurance work?
There are four components which make microinsurance effective in a country: (1) demand, and an understanding of the demand for risk management options in that market; (2) suppliers who are eager and willing to take on a little risk in order to enter that new market; (3) innovative distribution channels that really reach and are trusted by low-income people; and (4) proportionate regulation that allows insurers to try new and sometimes unusual paths.
In your opinion, what are the most pressing challenges in the field of microinsurance?
One of the most pressing challenges is the lack of data. Either there is no data recorded, existing data is incomplete, or it can’t be shared. Especially nowadays when we are looking at global issues, such as climate change, there is an increasingly greater need for good data. To compensate for lack of data, insurers increase premiums of products, which in turn become unattractive for the particularly price-sensitive clientele. In order to face this problem, we as the MicroInsurance Centre at Milliman try to identify other ways to get data. For example, we conducted our own mortality study of dairy cows in the Republic of Georgia so insurers were able to design attractive livestock insurance products. In villages where we work in Ethiopia, we have hired people to track rain gauge levels on a daily basis and to take consistent weekly photos of crops, to help triangulate data from satellites.
In microinsurance it is particularly important to design simple and understandable products. Based on a long history of insurance in many developed markets, we typically have trust in our insurers, but this trust is typically lacking amongst low income people in developing markets. The need to build this trust through SUAVE products serviced quickly is a critical ingredient. That is why products need to be easy to understand and reliable (minimal exclusions). For actuaries, that means looking at microinsurance differently and thinking about the real cost implications of exclusions and conditions for this particular market segment. For people earning USD 1-5 per day, for example, what is the statistical cost implication of “dying as a result of an accident in a rocket propelled vehicle” as one insurer once excluded in their microinsurance policy? Actuaries need to look at these products and this market in a proportional manner, not just taking the general list of exclusions off the shelf and applying that where they might make no sense.
Insurers also need to rethink distribution channels – microinsurance cannot succeed with expensive door-to-door sales. We need to be creative and sell microinsurance in places where low-income people gather. Examples are microfinance institutions in many countries, pawn shops in the Philippines, churches in South Africa, and in many places kiosks, food markets, feed stores, veterinarians and via mobile network operators. This also requires regulators to take a proportionate approach to who can sell microinsurance. These focal points are staffed by trusted providers to the low-income populations.
The actuview platform is the first international streaming platform for actuaries and reaches over 10,000 users from more than 40 countries. What opportunities will actuview produce for the field of microinsurance?
Often, microinsurance is a challenge for actuaries. Microinsurance is forcing companies to think in new ways. Actuaries also need to expand their thinking in more creative and flexible ways. actuview is a great opportunity to reach 10,000 actuaries (and more to come) from several nations, including many countries where we work. On the one hand, if we can get specific information to actuaries which help them understand the way microinsurance works, we have greater flexibility out in the field when we are trying to make changes with insurance companies. On the other hand, there are learnings from microinsurance that don’t need to stay just under the banner of microinsurance, such as the policies in the size of a business cards. Every product in the world can be easy to understand. Actuaries and insurers can learn a lot from microinsurance.
Is microinsurance the insurance market of the future?
Microinsurance is both the beginning and the future, so to speak. Microinsurance is where insurance started. Back 1900, the largest company in the world was the Metropolitan Life Insurance Company. They achieved this through the premiums from industrial insurance in which they offered products for factory workers, sold them at the factory gates, and collected premiums on payday – that is the idea of microinsurance – designing products specifically to fit the needs and lives of low-income people.
Microinsurance is also the future. It is a vast market with great opportunity that is nearly untapped. Actuarial students should learn more in this field, take these lessons, and apply them to both developed and undeveloped countries, because there is so much to learn, and so many ways we can improve the experience of insurance.
To dive deeper into the subject, watch the three episodes of the Milliman MicroinsuranceSeries on actuview: