Microinsurance industry sees profits from the poor

By Sunanda Creagh

JAKARTA (Reuters) - Slum-dweller Krustin bin Juri lost everything when floodwaters swept through his home and shop on the banks of Jakarta's filthy Ciliwung river two years ago.

But when the next flood hits, and it will because Jakarta sees frequent floods in the rainy season, bin Juri may have a modicum of protection thanks to a low-cost insurance policy that he purchased this month.

He is among millions of the world's poor who are covered for natural disasters by cheap insurance, or microinsurance, as commercial firms recognize that insuring the poor is not just good public relations but also profitable.

"Interest in microinsurance has been exploding throughout the world," said Craig Thorburn, a senior insurance specialist at the World Bank who has developed microinsurance programs and who advises countries on insurance market development.

"New projects and proposals are being developed in more and more countries. Government policy-makers are reviewing their regulations and the microinsurance sector does not appear to have been slowed by the crisis."

Microinsurance began as a form of charity in the 1990s, when the International Labour Organization began experimenting with super-cheap insurance policies, said Michael McCord, president of the U.S.-based MicroInsurance Center who recently discussed the topic with officials at Indonesia's central bank.

In 1995, McCord said he developed an entirely commercial microinsurance product backed by insurer AIG, with a view to selling it through a microfinance institute in Uganda.

"This example showed that commercial microinsurance is possible and became the demonstration model that helped other commercial insurers recognize the low-income market as viable," he said.

Within a decade, AIG's Ugandan business covered about 1.6 million lives, and microinsurance premiums accounted for nearly 17 percent of its Ugandan unit's profits.

Today, a $1,000 life insurance policy sells for just $1 a year in Uganda, McCord said, making it affordable to the poor. He estimates that about 135 million low-income people worldwide are now covered by cheap insurance, up from 78 million two years ago.

Investors are seeing potential in what could be a multi-billion dollar industry. The Leapfrog Financial Inclusion Fund announced last week that it had raised $44 million for what it said was the world's first microinsurance fund.

"The world desperately needs market-based solutions to poverty that draw in major financial investors by offering fair but competitive returns," said Dr. Andrew Kuper, President and Founder of LeapFrog, a Luxembourg-based fund.

"Microinsurance is both profitable and scalable," he was quoted as saying on the fund's website. The fund will invest in India, Pakistan, South Africa, Ghana and Kenya, it added.

MIXED SUCCESS

Some governments have taken a more active role in promoting such insurance schemes to the poor. For example in India, it is compulsory for insurer firms to offer a microinsurance product, though the results have been mixed.