17th ICDC explores avenues to enhance insurance penetration in emerging economies

Tuesday, 1 October 2013 00:36 -     - {{hitsCtrl.values.hits}}

By Shabiya Ali Ahlam Sri Lanka is the centre of attention once again as it hosts the 17th Insurance Congress of Developing Countries (ICDC) for the first time. The invitation to host the event was extended by the Association of Insurers & Reinsurers of Developing Countries (AIRDC) to the Insurance Association of Sri Lanka (IASL). Held over two days, the congress officially kicked off yesterday in Colombo under the theme ‘Enhancing Insurance Penetration in Emerging Economies,’ and will come to a close today. The event was attended by over 300 participants of whom 150 delegates from 30 countries were present. Among the crowd were regulators, insurance and reinsurance companies, insurance/reinsurance brokers, risk managers, actuaries, marketing specialists,  and IT service providers to name a few. The opening ceremony featured Insurance Board of Sri Lanka (IBSL) Chairperson Indrani Sugathadasa as the key note speaker. The inauguration was also graced by AIRDC Secretary General Evangeline Crisostomo-Escobillo, Insurance Association Sri Lankan (IASL) President Prakash Schaffter, IBSL Director General Chandri Gunawardena, AIRDC Chairman of 17th ICDC Jagath Alwis, AIRDC Vice President Antonio Locus, and AIRD Treasurer Roberto Crisol. The opening ceremony also featured UNEP Financial Initiative Principle for Sustainable Insurance Initiative Program Leader Butch Baccani as the guest speaker. While the objective of the ICDC is to share success stories and challenges of emerging economies and developed markets, the event is also identified as an opportunity for those present to meet their business counterparts to build on existing and forge new business relationships. 17th ICDC theme relevant in the context of insurance in emerging nations Delivering the welcome address was IASL President Schaffer who said the AIRDC has made the “right” choice in selecting Sri Lanka as the host country. “While the IASL is honoured to organise this event, I am sure AIRDC gave serious though on the host country and I am sure they have made the right choice. You will endorse the decision of the AIRDC in choosing Sri Lanka as the host country after the end of the congress,” he told the audience. Providing a snapshot of the insurance industry of Sri Lanka, Schaffer pointed out that Sri Lanka has a vibrant insurance industry as it has 21 insurance companies and 40 insurance brokers. Noting that the insurance market is worth US$ 700 million and has a compounded annual growth rate of 12%, he said when comparing with the developed markets, the Sri Lankan industry is rather small. Looking at this from a penetration point of view in relation to GDP, in Sri Lanka the figure hovers at 1.2% and has been at that for the past few years. This according to him is low when comparing to the West, or even the South Asia region itself. “This congress is timely and the theme is relevant in the context of insurance in the developing countries. I am hopeful that we will be able to learn from other countries. We can learn from the success stories on how few countries tackled the challenges before them. I am certain these learning can be implemented. However doing so with a local flavour is important,” opined Schaffer. AIRDC Secretary General Crisostomo-Escobillo expressed that the theme selected for the 17th ICDC not only embodies relevant and interesting topics for discussion, but also features 14 eminent speakers from whom a lot can be learnt from. Congratulating Sri Lanka for being selected as the host country for the event, she said: “I praise the steadfast effort of the IASL and must thank the institution for the revival of the ICDC.” Crisostomo-Escobillo expressed that she was perplexed when appointed as Secretary General of the AIRDC but with the support extended by the industry she had the courage to move forward. “It is challenging since it is not about having an opinion, but it is to understand insurance and knowing the purpose. We at the AIRDC ask ourselves what is it that we are searching for? When do we reactivate and start? We all know the answer to the question.  The answer is now. AIRDC today is not only member oriented, but is also change oriented,” she stated. Reasons for low insurance penetration in emerging economies Delivering the keynote, IBSL Chairperson Sugathadasa asserted that enhancing penetration has been a challenge since the birth of the insurance industry. This challenge still persists in developing countries, she said. Pointing out that less than 5% of population has access to insurance, she stated that in Sri Lanka it is the urban population that is protected with insurance. Identifying a gap, she said the insurance industry in Sri Lanka has yet to reach the rural areas where 75% of the population resides and warned that it will be fatal to ignore this segment. Stating that insurance companies have always blamed the low income of the segment for the lack of penetration, Sugathadasa dismissed this by stating it cannot be the case since the income level in rural areas are noted to be increasing. Challenging those in the insurance industry to tap into this segment, which according to her is the key to increase penetration, Sugathadasa elaborated on the issues and recommended few measures to overcome the same. “In my understanding there are many reasons for the lack of penetration. The industry has yet to design appropriate products to satisfy the need of consumers. One has to understand the rural way of life and the risk they face on a day to day basis,” she said. Sugathadasa stated the complicated procedure most insurance companies have in place have led the rural community to reject products even if it is beneficial to them.  Stating that high premium is another element that discourages the rural community to embrace insurance, Sugathadasa stressed the need to have attractive premium rates. Attributing the lack of distribution channels as another reason for low penetration rates, she said while in developing countries rural infrastructure is poor; Sri Lankan is an ideal example to show this notion is slowly changing. Observing that ICT has brought communities together, she advised the medium has to be fully harnessed to improve sales of insurance products. Justifying her statement she said: “Today banking has become convenient and most companies are opening branches in rural areas. Insurance companies generally focus on risk rather than focusing on the opportunity.  As infrastructure is developing, there will be many opportunity to grab on. Looking at the risk alone will not allow the industry to grow, so it’s time we embrace this.” Micro-insurance: The way forward In addition to identifying reasons for the low penetration rates in developing countries, Sugathadasa also drew attention to a solution to the problem. According to her, micro-insurance is the way forward for the industry. Defining micro-insurance as the “protection of low-income people against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved,” she said the concept has different meanings to different segments. Highlighting the benefits of micro-insurance, in addition to the profits it brings, she said it will allow to access a larger and diversified risk pool, market intelligence, innovative solutions, and stronger future business prospects. “Currently around of 5% of low income populations are using micro-insurance products. I am of the opinion that insurance is not charity, it is business. Most insurance providers need a change in the mind set.  Companies must question how concepts that haven’t been heard of can be sold? How to make money from a policy that has low premium?  By going back to the basic and having innovative product design, there is a way around this,” she stated. “The telecommunication industry has thought differently about the rural populace and they have benefitted from this greatly. In our part, insurance is seen as a luxury. By not tapping the rural community, it will be a challenge to achieve the desired penetration rates,” added Sugathadasa. However, she pointed out that the rural population is unfamiliar with the concept of insurance thus does not treat it as a risk management tool. “This segment does not see insurance as a necessity. There is a need to educate them, and that is another challenge. With the emergence of microcredit, more people are gaining access to wealth. The time is right to tap into micro-insurance,” said Sugathadasa. While no two developing countries are the same, she said a customised approach and new solutions are imperative to move forward. “With the rapid urbanisation, financial sector development and climate change, we as an industry can be hopeful of a plethora of insurance opportunity. The time has come to think and act differently. Doing the same over and over will not give different results.  Investment in micro-insurance has diverse returns over time. It is up to the industry professionals to take the opportunity and make use of it in their respective countries,” advised Sugathadasa. UN initiative to uplift global insurance industry UNEP Program Leader Baccani shared initiatives formulated by the UN to uplift the global insurance industry as it is viewed as an avenue to achieve sustainable economic growth. “For the UN, the importance of insurance is not limited to the risk protection. It is important to highlight that the risk protection is the last step of risk management value change.  It is the process of managing insurance that is very important,” he said. In the global context, the world has reached the environment threshold. The changing of the landscape is affecting the way risks are managed and Asian countries are in the front line on this regard. Focusing on insurance he said: “The insurance densities in Asian countries are low. The challenges are not limited to environmental issues. The key challenge is that insurance is not treated as a trusted industry by many developing countries.” Baccani said this notion was confirmed after having conducted a survey in 25 countries where over 20,000 people were interviewed. During this survey it was observed that with regard to trust, financial services are placed in the bottom of the pile. “There is trust gap in the global insurance industry and corrective measures have to be taken to address this,” asserted Baccani. He noted that to manage the reputation of the insurance industry, the sector has to move from the frame of legal accountability to commitment. To help the insurance industry to come out of this scenario, and to build on the foundation laid by it to support a sustainable society, the UN has formulated four principles which the institutions falling under the industry should follow. The principles for sustainable insurance  are; to embed in the decision making environment, social, and governance, issues relevant to the insurance business, to work together with clients and business partners to raise awareness of environmental, social, and governance issues while managing risk and developing solutions, to work together with governments, regulators, and other key stake holders to promote the widespread action across society on environmental, social, and governance issues, and to demonstrate accountability and transparency in regularly disclosing publicly the progress in implementing the principles. He shared that the future UN wants is a society in which people are aligned and incentivised to adopt sustainable practices. To realise this aim, the UN will use its intellectual, operational, and capital capacities to implement the principles for sustainable insurance across its sphere of influence, subject to applicable laws, rules and regulations and duties owed to shareholders and policy holders. “We are now in a phase where we want to transform the principles into an initiative. We want to create research and practices in the industry. We want the initiative to become a hub for dialogue with the larger regulator system. If we are able to implement these principles, we will be able to setup a sustainable insurance society. This is emerging to be a catalyst to the industry,” said Baccani. Pix by Upul Abayasekara