Breaking first world moulds to extend insurance to

emerging markets

For years now there's been talk about the maturity and saturation of world insurance markets. Sadly, it takes an event like the Asian tsunami in December 2004 to focus attention on the extremely low insurance penetration rates in emerging markets. Swiss Re's sigma report paints a dismal picture: of the countries abutting the Indian Ocean, Malaysia has the highest rate of insurance with a penetration of life and non-life insurance at just over 5%. Thailand is second with just over 4.35%; India comes in at less than 3% and Sri Lanka a mere 1.3%. The average insurance spend in emerging markets as a whole is $59 per person - split between $36 on life and $23 on non-life. The bleak reality of this statistic becomes evident when it is compared to the UK where the split is $2617 for life and $1441 for non-life.

In the case of the recent tsunami, the insured losses were low as opposed to real losses both in terms of human life (that?s if one can even begin to place a monetary value on life) and actual commercial and property losses. And the loss of property is magnified even further when one considers that much of the property lost contributed to the countries' economies both in terms of generating tourism revenue and providing livelihoods for locals.

Closer to home, the insurance industry has been talking about the emerging market for the past decade, yet it is only now that the Financial Service Charter has identified product development and access as one of its scorecard elements that we are starting to see some progress. How is it that market forces and economies of scale weren't strong enough to push the industry into that direction in any event? In fact, the industry as a whole has been slow to recognise the very real commercial opportunities that exist in the emerging market.

While South Africa, thankfully, cannot claim to have had a catastrophe anywhere near the magnitude of the tsunami, it is a fact of life that the biggest impact of local natural disasters, like floods and fires, inevitably occurs in areas with large groups of uninsured inhabitants.

Perhaps the reason that insurance take up in emerging markets is so low is because insurers have been trying to fit the proverbial square peg into a round hole, finding that the conventional first world insurance model simply does not suit local conditions. How can someone living in an informal settlement even begin to meet the traditional requirements to be considered a good risk? Without a fixed address, the required length of home ownership and value of contents, the very person who most needs coverage will be denied access to the insurance market.

Perhaps it is time for the insurance industry to turn its renowned ability to create large international insurance pools for earthquake, storm, nuclear and other major catastrophic risks to establishing pools for smaller catastrophes in emerging markets. Often large international pools are established in conjunction with market participants - like nuclear plants in the case of nuclear risks - and in the emerging market context this could include local communities and even government participation.

It would undoubtedly make good business sense - both within the insurance market and the broader economic context - to provide catastrophe related type of insurance cover to those who need it most. Those insurers who are willing and able to step outside of their first world paradigm will be the most successful at finding solutions that best fit emerging markets, and they will reap the benefits.

For further information please contact:

Herman Schoeman, MD of Guardrisk

Telephone: +27 11 669-1001

Issued by:

Melanie Davis, PR@Work

Telephone: +27 11 615-3309 / +27 83 225 7450