FPDWeek Insurance Diaz

MICROINSURANCE IN COLOMBIA:
Lessons and Challenges

FPD WEEK 2010
Washington D.C March 4 - 2010
1/37
Content
1. Low Income Markets Vs. Traditional Insurance Markets

2. Development of Microinsurance Market in Colombia
3. Distribution Channels
4. Microinsurance for Familias en Accin and Red Juntos
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Low Income Markets Vs.

Traditional Insurance Markets
Different Client Product and Distribution Characteristics
3/37
Line of Poverty
58,0
56,0
55,7
55,1
53,8
54,0
52,0
50,4
50,0
20,3
Millions
Had fall 11 points
48,0
45,1
46,0
44,0
2002
2003
2004
2005
2006
Source: DNP 2006. MERPD ENH y ECH
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Line of Extreme Poverty

24,0
22,0
21,6
20,0
18,8
19,0
18,0
15,4
16,0
14,0
5,4
Millions
Had fall 10 points

12,0
12,0
2002
2003
2004
2005
2006
Source: DNP 2006. MERPD ENH y ECH
5/37
The Poor Are More Vulnerable to

Risks
35%
30%
25%
1
2
2
3
20%
15%
1
2
10%
5%
0%
Any serious illness or disease
Head of household
unemployed
1 Income
2 Quintile
3 4
Natural Disasters
Source: Living Standards Measurement Study Survey, 2003
6/37
The Poor Adopt Perverse Strategies

to Cover Losses
30%
25%
20%
15%
1
4
5
2
10%
5%
4
5
0%
Food expenses were

reduced
Clothing expenses were Take Their Children Out

reduced
of the School
1
PERVERSE
Incurred debts
Savings were spent
INFORMAL AND FORMAL
Source: Living Standards Measurement Study Survey, 2003
7/37
Households Monthly Income per

Socioeconomic Level
< $250 USD
19,6%
5,7%
3,2%
$251 - $350 USD
8,7%
$351 - $500 USD
$701 - 1.000 USD

> $1.001 USD
24,9%
26,2%
18,3%
10,3%
$501 - $750 USD

2,8%
4,5%
2,4%
27,7%
22,8%
20,2%
23,8%
11,8%
6,0%
13,7%
12,3%
NS/NR
SEC 1
SEC 2
14,6%
20,6%
SEC 3
Source: FASECOLDA - YANHAAS 2009
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Risks Poor People Have Suffered
Unemployment
20,8%
Illness
Labor Accident
15,0%
28,0%
10,9%
11,7%
Theft
Traffic Accident
31,7%
9,5%
Death
14,2%
16,6%
1,0%
45,0%
27,1%
20,7%
14,5%
9,4%
7,0%
7,7%
11,8%
SEC 1
SEC 2
SEC 3
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How Poor People Covered Their

Risks
Loans
55,2%
Savings
20,2%
Reduce comsuption
8,1%
Sell assets
6,5%
Insurance
3,7%
Lottery and charity
3,2%
Look for another income
2,9%
Others
0,4%
10/37
Different Product Characteristics

Products that respond to the protection needs of low income people.
The costs are high in training agents and in educating the clients. In that
regard, policies should be easy to understand and to explain.
Periodical payments regarding their cash flow.
The scale of operation must be very small in terms of premiums but in high
volumes.
Microinsurance is not an economic version of traditional products.
Easy to sign: without previous inspections, special conditions to be a
policyholder and moral hazard.
No exclusions.
11/37
Different Product Characteristics

Easy to collect the premium thanks to the alliances with utilities services,
microfinances institutions and retailers, among others.
Easy to compensate. Fast payment and without many requirements.
Claim process could not be the same for an insurance value of 100
thousands dollars than for an insurance value of one thousand dollars.
Payment process with minimal verifications. Evidence could replace some
requirements which are needed in traditional insurance products.
Products are meant to be used, so the best reward in terms of client
confidence is to pay with minimal conditions.
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Development of Microinsurance
Market in Colombia
Reasons and Results
13/37
Reasons and Lessons

In regards to the Planning National Department, in 2006 there were 20,3
Million people in poverty in Colombia (41%) and 5,4 Million people in extreme
poverty (12%)
Poor are more vulnerable to risks and they are not able to face them properly.
Low insurance penetration. According to Sigma 2008, 2,2% measure how
premiums / GNP
Larger potential market.
The development of microinsurance has been based on market solutions,
where companies compete by offering alternative combinations of products
and coverage, through different distribution channels.
14/37
Lessons From The Colombian

Experience
Colombia is a country case where microinsurance has been developing
rapidly through the private sector initiative, without any special laws, rules or
regulations.
According to the Microinsurance Center and our own statistics there are
three million policiyholders. Microinsurance encompasses more than 1,3% of
all premiums.
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Microinsurance Providers
More than 40% of insurance companies in Colombia (national and foreign
capital based, mutual cooperatives and one state-owned) already offer some
type of microinsurance products.
Cooperative insurance companies have had microinsurance operations for
more than 15 years.
They have had to adjust their internal process to serve low income people.
Licensed and regulated providers ensures client protection.
A microinsurance business not as a special line of business or a special
insurance company, but as a product under the regular lines of business,
allows the application of the large numbers law and permits internal cross
subsidies which ensure the viability and sustainability of this new kind of
business.
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Issued Premiums December 2009
Dec-08
Issued Premiums
(USD Millions)
Funeral
Dec-09
Growth
Issued Premiums
(USD Millions)
$ 31,7
54,2%
$ 31,0
41,2%
-2,2%
Life
$ 16,3
27,8%
$ 25,7
34,3%
58,2%
Accidental D.
$ 7,5
12,8%
$ 13,3
17,7%
77,6%
Others
$ 3,0
5,2%
$ 5,1
6,8%
66,9%
Total
$ 58,5
100,0%
$ 75,1
100%
28,4%
Includes: AIG, ALFA, A<LICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE,
QBE, SOLIDARIA y SURA
Does not include: EQUIDAD y CARDIF
Source: FASECOLDA 2010
Microinsurance Preliminary Results up to December 2009
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Total Issued Microinsurance

Premium / Total Industry 2009
1,32%
Primas Emitidas Total

Industria
Primas Microseguros
Includes: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE,
SOLIDARIA y SURA

18/37
Policyholders December 2009
Dec - 2008
Dec - 2009
Growth
Policyholders
Policyholders
Funeral
780.783
31,7%
722.123
24,6%
-7,5%
Life
738.558
30,0%
1.017.273
34,7%
37,7%
Accidental D.
657.757
26,7%
699.275
23,8%
6,3%
Others
288.573
11,7%
496.385
16,9%
72,0%
2.465.671
100,0%
2.935.056
100,0%
19,0%
Total
Include: AIG, ALFA, ALICO, AURORA, COLPATRIA, COLSEGUROS, ESTADO, LIBERTY, MAPFRE, QBE,
SOLIDARIA
Does not include: EQUIDAD, CARDIF y SURA
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Average Monthly Premium
Dec-08
Dec-09
Average Anual
Premium
Average Monthly
Premium
Average Anual
Premium
Average Monthly
Premium
Growth
Funeral
$ 40,6
$ 3,4
$ 42,9
$ 3,6
5,7%
Life
$ 17,8
$ 1,5
$ 20,5
$ 1,7
14,9%
Accidental D.
$ 11,4
$ 0,9
$ 19,0
$ 1,6
67,1%
Others
$ 10,6
$ 0,9
$ 10,2
$ 0,9
-3,0%
$ 22
$ 1,9
$ 23,9
$ 2,0
6,5%
Total
SOLIDARIA
Does not include: EQUIDAD, CARDIF, SURA
(1) Note: The anual average premium in funeral services corresponds to the whole nuclear family, meaning 4 people in
average per house. This means that the anual premium per person in funeral services is in average 11 dollars.

20/37
Average Insured Value
Dec-08
Dec-09
Average
Insured Value
Average
Insured Value
Funeral
$ 1.108
$ 1.124
1,4%
Life
$ 2.614
$ 4.201
60,7%
Accidental D.
$ 9.277
$ 14.651
57,9%
Others
$ 9.925
$ 10.043
1,2%
Total
$ 4.770
$ 6.922
45,1%
Growth
SOLIDARIA
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Paid Claims December 2009
Dec-08
Paid Claims
(USD Millions)
Funeral
Dec-09
Growth
Paid Claims
(USD Millions)
$ 21,5
78,9%
$ 18,9
72,2%
-12,5%
Life
$ 4,5
16,5%
$ 5,6
21,6%
25,2%
Accidental D.
$ 0,8
3,1%
$ 1,0
3,8%
18,3%
Others
$ 0,4
1,4%
$ 0,6
2,4%
58,1%
Total
$ 27,3
100,0%
$ 26,1
100,0%
-4,3%
SOLIDARIA y SURA
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Number of Paid Claims

December 2009
Dec - 2008
Dec - 2009
Growth
No. Paid Claims
No. Paid Claims
Funeral
18.513
79,7%
18.848
75,0%
1,8%
Life
1.584
6,8%
2.244
8,9%
41,7%
Accidental D.
1.992
8,6%
2.701
10,7%
35,6%
Others
1.138
4,9%
1.333
5,3%
17,1%
Total
23.227
100,0%
25.126
100,0%
8,2%
SOLIDARIA y SURA

23/37
Average Paid Claims
Dec-08
Average
Paid Claims
Dec-09
Average
Paid Claims
Growth
Funeral
$ 1.164
$ 1.000
-14,0%
Life
$ 2.053
$ 1.892
-7,8%
Accidental D.
$ 424
$ 370
-12,8%
Others
$ 347
$ 468
35,0%
$ 1.121
$ 984
-12,2%
Total
SOLIDARIA

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Paid Claims Ratio
dec-08
dec-09
Growth
Paid Claims Ratio
Paid Claims Ratio
Funeral
68,0%
60,9%
-10,5%
Life
27,7%
21,9%
-20,9%
Accidental D.
11,3%
7,5%
-33,4%
Others
13,0%
12,3%
-5,3%
Total
46,7%
34,8%
-25,5%
SOLIDARIA

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Distribution Channels
Where is the success?
26/37
Different Distribution
Characteristics
Sign alliances with proper distribution channels that know the market and
ensure easy access to the same.
The channel should ensure fast and massive sales, and the collection of
premiums.
The distribution of microinsurance products is easier when done along with
other financial and non financial services.
Distribution mechanisms ought to be innovative, low cost and massive.
Most used channels: Utilities Services, MFI, Cooperatives, etc.
27/37
Access to Utilities
95,8% 97,2%
87,3% 86,7%
83,8%
72,9% 73,9%
54,7%
47,4%
44,3%
35,3%
17,7%
Electricity
Aqueduct Sewer system
2003
Town gas
Phone
Mobile
phone
2008
Source: DANE ECV - 2008
28/37
Issued Premiums per Channel

December 2009
Dec-08
Issued Premiums
(USD Millions)
Banks
Dec-09
Growth
Issued Premiums
(USD Millions)
$ 3,6
6,5%
$ 6,7
9,5%
85,1%
Familiar Benefits Unions
$ 0,5
0,8%
$ 0,8
1,2%
74,7%
Cooperatives
$ 24,3
43,9%
$ 22,5
32,1%
-7,3%
Utilities
$ 18,9
34,0%
$ 27,4
39,0%
45,1%
MFI
$ 5,6
10,2%
$ 9,7
13,8%
72,0%
Supermarkets
$ 1,1
1,9%
$ 1,2
1,7%
12,9%
Others
$ 1,5
2,6%
$ 1,9
2,7%
31,7%
TOTAL
$ 55,4
100,0%
$ 70,2
100,0%
26,8%

29/37
Policyholders per Channel

December 2009
Dec-08
Dec-09
Growth
Policyholders
Policyholders
Banks
93.599
3,8%
224.445
7,6%
139,8%
Familiar Benefits Unions
5.517
0,2%
8.081
0,3%
46,5%
Cooperatives
612.981
24,9%
508.263
17,3%
-17,1%
Utilities
903.572
36,6%
1.290.137
44,0%
42,8%
MFI
476.487
19,3%
726.158
24,7%
52,4%
Supermarkets
309.669
12,6%
66.702
2,3%
-78,5%
Others
63.846
2,6%
111.270
3,8%
74,3%
TOTAL
2.465.671
100,0%
2.935.056
100,0%
19,0%
Does not include : EQUIDAD ,CARDIF y CARDIF

30/37
Microinsurance for Familias en

Accin and Red Juntos
The Challenge
31/37
Who are Familias en Accin &

Red Juntos
Familias en Accin is a Cash Conditional Transfer program in which 3 million
families in poverty or extreme poverty with children below 18 years old,
receive, per each child, a subsidy to keep children at school and to meet
nutrition standards.
The CCT is $50 dollars, given every month through a saving account (2
million families)
Familias Red Juntos is a program that identifies the extremely poor and picks
up a baseline, which is composed of 45 goals in 9 areas (housing, banking,
education, health, etc).
The program encourages 1,5 millions families to meet the goals, otherwise
they will continue in the extreme poverty.
32/37
Who are Familias en Accin &

Red Juntos
Red Juntos does not give subsidies, it just gives an accompaniment to the
families through a person who is called the Cogestor and whose goal is to
take out the family from the poverty.
The aim of the program is to bring near the families the different public and
private services supply, which could help them reach the goals and thus,
overcome the poverty.
One of the goals is financial education and access to microinsurance.
To meet that goal, Accin Social (the policy of the government in charge of
both programs),the insurance industry, paralife and multilaterals are working
on:
33/37
The Project
Setting up a fund with multilaterals and government resources to insure 1,5
millions families, subsidizing 100% of the premium the first year, 70% second
year and 40% the third year.
The insured value of the life insurance should be at least $1.000 dollars and
the premium 3 or 3,5 dollars per year.
No exclusions, no conditions.
72 hour for paying claims.
Government would like that all insurance companies to join to this initiative,
and that is the reason why Fasecolda was inviting. Companies interested in
participating will create a risk pooling.
34/37
The Project
A portion of the funds resources will focus on the financial education

program. (Fasecolda has developed for two years a program like that through
workshops and is going to launch the radio program next May).
Insurance companies have to commercialize a voluntary product to cover the
wife or husband.
Insurance companies have to develop an innovative idea to collect the
premium since the second year of the project and utilities look like one of the
possible distribution channels.
35/37
Final Comments
Colombia is a case where microinsurance has had a fast development
through the private sectors initiative, without any special laws, rules or
regulations.
The development of micro insurance has been based on market solutions.
The biggest challenge is selecting the appropriate distribution channel that
ensures massive sales and the colletion of the premium.
Insurance and financial culture must be encouraged.
The access to insurance from the poorest of the poor could be encouraged
through public private initiatives as the one we are working on.
36/37
Thanks !
37/37

FPDWeek Insurance Diaz

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MICROINSURANCE IN COLOMBIA:

Lessons and Challenges

1. Low Income Markets Vs. Traditional Insurance Markets

Low Income Markets Vs.

Had fall 11 points

Source: DNP 2006. MERPD ENH y ECH

Line of Extreme Poverty

Had fall 10 points

Source: DNP 2006. MERPD ENH y ECH

The Poor Are More Vulnerable to

Source: Living Standards Measurement Study Survey, 2003

The Poor Adopt Perverse Strategies

Food expenses were

Clothing expenses were Take Their Children Out

Savings were spent

INFORMAL AND FORMAL

Source: Living Standards Measurement Study Survey, 2003

Households Monthly Income per

< $250 USD

$251 - $350 USD

$351 - $500 USD

$701 - 1.000 USD

$501 - $750 USD

Source: FASECOLDA - YANHAAS 2009

Risks Poor People Have Suffered

Source: FASECOLDA - YANHAAS 2009

How Poor People Covered Their

Lottery and charity

Look for another income

Source: FASECOLDA - YANHAAS 2009

Different Product Characteristics

Different Product Characteristics

Reasons and Lessons

Lessons From The Colombian

Issued Premiums December 2009

Total Issued Microinsurance

Primas Emitidas Total

Source: FASECOLDA 2010

Policyholders December 2009

Average Monthly Premium

Source: FASECOLDA 2010

Average Insured Value

Paid Claims December 2009

Number of Paid Claims

No. Paid Claims

No. Paid Claims

Source: FASECOLDA 2010

Average Paid Claims

Source: FASECOLDA 2010

Paid Claims Ratio

Paid Claims Ratio

Paid Claims Ratio

Source: FASECOLDA 2010

Aqueduct Sewer system

Source: DANE ECV - 2008

Issued Premiums per Channel

Familiar Benefits Unions

Does not include: EQUIDAD y CARDIF

Policyholders per Channel

Familiar Benefits Unions

Does not include : EQUIDAD ,CARDIF y CARDIF

Microinsurance for Familias en