10 Years of Evolution in Inclusive Insurance

Ten years ago, more than three million Colombians had some sort of microinsurance.  According to recent figures from study “The Landscape of Microinsurance in Latin America and the Caribbean", over five million Colombians or over 10% of the total Colombian population is covered by such a policy. The study also found that, by the end of 2016, some 52.1 million Latin Americans (8.2 percent of its population, including the Caribbean) had at least one microinsurance policy and that the premiums for then were valued at $420m. Although the number of people with agricultural microinsurance has grown substantially (by 132%), life and personal accident insurance still dominate with a  market share of about 64%.

A national financial inclusion strategy is key
Insurance is only one of several financial instruments that are key for sustainable economic development of the country. According to the Financial supervisory of Colombia (Unidad de Proyección Normativa y Estudios de Regulación Financiera -URF), the percentage of the population with some sort of access to financial instruments has increased from just over 50% in 2006 to over 80% ten years later. This is a result of a number of national activities aimed at improving financial inclusion, including financial education programs, the development of mobile payment schemes, the improving of access in rural areas as well as new tools to support small and medium enterprises.

The vision for 2025 is for Colombia to have a financial market that is inclusive, reliable, competitive and sustainable. The main game changers in this journey will be increased use of technology and implementation of more digital models in the financial industry. A special FinTech working group was formed in 2017 with the main goals of promoting the use of technology and ensuring client protection. URF will pay special attention to rural areas as well as insurance for the agricultural sector. In a post-conflict country like Colombia in particular, insurance can play an important role for those who have signed a peace agreement and have relocated to rural areas to start a new live in the agricultural sector. “What happens if el Nino impacts yield and prices for crops?”, asked Rodrigo Rivera, High Commissioner for Peace in Colombia, and asked for each sector to play its role in a sustainable future. According to experts from the World Bank however,  solutions will not succeed without substantial governmental involvement (especially those for the agricultural sector).

Technology is not the innovation but the tool for innovation
Inclusive insurance has become an important field of learning for the industry and regulators. The implementation of "regulatory sandbox" approaches that allow development and testing of new digital solutions is one of them. But why for example, according to Banca de las Opportunidades, do 72% of the micro-enterprises in Colombia still not count on insurance customers as a risk management tool ?. The main reasons mentioned include exclusion, insufficient income, lack of financial education, costs and products that do not meet the needs of target customers.

Technology alone will not be the solution to bringing about change. But it will facilitate the development of new ways to address customers, help in the design of better products, increase efficiency and also create tools for financial education. Or as Martha Santamartha from AXA put it: ”To hell with circumstances – Create opportunities!”. Axa believes that technology will play an important role in helping people to live a better life, as well as to access the estimated 3 billion emerging clients that have not as yet been reached.

One special focus of insurance providers and FinTechs will be on digital payment methods, which (unlike in some countries in Africa) have not yet reached scale in Latin America but are key for a fully digital value chain.

Partnerships in managing climate risks
The conference concluded with a full day discussing ways of helping people to better cope with climate risks. Back in 2008, the president of Colombia in his inaugural speech for the 2008 International Microinsurance Conference mentioned the huge losses caused by natural disasters and called for public private partnerships. Climate change is making the situation worse and we need to acknowledge that what we call “climate risk insurance” is virtually unavailable now. 

To improve the situation, it is not just one financial instrument that is needed but a set of tools and a mix of ex-post and ex-ante financing strategies. An embedded strategy needs to be started that includes risk identification, definition of responsibilities for the various stakeholders, development of an operational plan for long, middle and short term measures, and development of appropriate tools on macro, meso and micro levels. One key to success is the strong involvement by the Ministry of Finance.

Opportunities laying ahead
The attendance of around 150 participants including a number of governmental representatives have shown the clear commitment of all stakeholders. The insurance industry sees the opportunities of inclusive insurance as a business, not a charity. More technology will help to make insurance more accessible and reduce costs. Colombia has undergone tremendous changes in recent years and conditions for increasing access to insurance have never been better.