Reinsurers’ Microinsurance “Reluctance” Changing

Chris Westfall
Chris Westfall

The international private reinsurance market is slowly warming to the idea of backing catastrophe microinsuance policies and weather products, according to a study released by the Munich Re Foundation Tuesday.

“Reinsurers have been reluctant to provide reinsurance to microinsurance schemes, but that is changing, as shown by recent products from Swiss Re for example,” the report says.

Last year Swiss Re reinsured a five-year, $1.24 million project that provides drought insurance for crops in Ethiopia provided by World Food Programme and Oxfam America.

According to the report, insurers and reinsurers that have tried to tackle weather and disaster risks “at the micro level” have found in unprofitable and required government subsidies. But with the development of so-called “informal schemes” that build scale at the local level, reinsurers could be convinced that the cost structure will eventually pay off.

“[The] small size of many schemes makes reinsurance relatively expensive. Networks or other aggregators, such as the International Cooperative and Mutual Insurance Federation in the case for mutuals or CLIMBS for Filipino cooperatives, may facilitate broader access to reinsurance,” the report says.

The report adds that reinsurance is especially important for micro policies for several reasons including:

  • Reinsurance stabilizes the financial conditions of the insurer especially when rare events such as natural disasters occur.

    • It meets regulatory capital requirements or even plays a role as a capital source for companies with limited means.

  • It provides additional professional services to insurers such as technical assistance, training or support in the product development phase.

Public money remains committed to the microinsurance movement. The international community has pledged $10 billion in 2009 for towards development to be increased to $100 billion by 2020, according to the report.