Page 24 - Islands Business March 2023

Insurance Insurance

GROWING INSURANCE IN THE

PACIFIC

By Samantha Magick

A vibrant ‘insurance movement’ is “disrupting the historical
status quo of insurance coverage access being largely con-
fined to medium to high income urbanites,” says the General
Secretary of the United Nations Capital Development Fund
(UNCDF).
Preeti Sinha says this movement “is buoyed by growing
interest from insurance companies to explore mass markets as
well as by support from government and central banks.”
Insurance rates in the Pacific are low, with just 15% of Fiji
adults having some sort of insurance, less than half of that
from rural areas and most accessing insurance through their
employers. In Tonga, the figure is 13%, in Samoa 21%, and
coverage in Vanuatu stands at just 5%.
Most insurance policies in the region are indemnity products
for personal assets such as homes, for car accidents, funerals, Flooding in Samoa following Cyclone Gita in 2018. Photo: Samoa Meteorological
Division
or for health and life insurance.
But UNCDF is looking at how the sector can be widened,
with the release of the report that looks at index insurance • Consider basis risk from the perspective of the insured
best practices. party (e.g., farmers), policy holders and insurers.
Index insurance pays out benefits on the basis of a predeter- • Standardise approval of index insurance products across
mined index (e.g., rainfall level) for loss of assets and invest- the region as much as practical.
ments, primarily working capital, resulting from catastrophic • Standardise consumer protection guidelines across Pa-
natural events such as cyclones and heavy rainfall. cific countries as much as possible.
The UNCDF report says supply-side barriers for index insur- • Scope for partial payouts and ex gratia payouts under
ance have included the fact that potentially catastrophic certain conditions.
natural disasters, have “a high concentration risk. Insur- • Consider bundling index insurance with other insurance
ers have therefore been generally reluctant to underwrite products and non-insurance services (e.g., loans).
these risks. The expected high severity and potentially high • Work towards digitisation of index insurance (e.g., the
frequency of risks can make these products very expensive. use of mobile money to pay premiums and claims pay-
The potential cost of the insurance premium combined with ments).
relatively low awareness of insurance among customers, and a • Review annually actuarial pricing and design.
lack of premium subsidies from the government, can make it The report adds that Pacific ministries of finance could
very difficult to provide such products on a viable basis for the consider the scope of smart subsidies for index insurance pre-
insurance companies.” miums. It says tax exemptions (e.g., waiving value added tax)
But the report advocates strongly for expansion of index in- could lead to products being more affordable and encourage
surance in the region, recommending steps to minimise basis higher uptake, as is the case in Fiji.
risk – the risk that insurance payouts do not cover the full cost It suggests that governments can enable a level playing field
of the claim event – and develop better quality products that for all insurers, enable a suitable environment for co-insur-
improve customer confidence. ance pools, and enable easier access to international reinsur-
It suggests ‘best practices’ for insurance regulators, includ- ance markets.
ing that they: The report concludes by advocating a regional approach:
• Clearly define and differentiate the different categories ”Taking into consideration the relatively small size of the
of index insurance, and differences between index and Pacific countries and the challenges they face regarding
indemnity insurance. geographical diversification of risk, they have to explore the
• Ensure that policy holders and insured beneficiaries both opportunities to pool risk across larger geographical regions.
have an insurable interest before coverage begins. This would give access to reinsurance markets and better
• Specify the key characteristics of a ‘good’ index, such terms as group countries, rather than approaching them indi-
as having objectivity, transparency and being able to be vidually.”
independently verified. The types of index should not be
restricted to allow for future innovations. editor@islandsbusiness.com

24 Islands Business, March 2023