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Insurance solutions for an emerging market economy



The views expressed in this article are not necessarily those of the FIA. The article below was supplied by Constantia Insurance Company.

Underinsurance, high premiums, and insufficient contribution to the incremental development of local financial and intellectual capacity by reinsurers are but a few of the obstacles to emerging economies and the short-term insurance sector in these markets, but insurers can turn this around. 

Speaking about the interconnection between emerging economies and the short-term insurance industry in a panel discussion at the recent African Insurance Exchange, CEO of Constantia Insurance Volker von Widdern said, “The key issue with insurance in the commercial and industrial sectors of emerging economies is that the annual cycles and reinsurance models don’t sustainably facilitate incremental capacity and intellectual property development.” 

Reinsurers must share long-term risk-sharing models and provide intellectual capital to mitigate the usual protection measures. “Insurance is a source of capital and capital is a source of investment and capacity/capability development,” explained Von Widdern. 

“If deployed in an appropriate medium-term context, insurance reduces the volatility of returns, particularly for new investments,” he said. 

The limited scale of emerging economies hinders insurers from implementing an individual client-based pricing and risk capacity model, noted Von Widdern. This has always been top of mind for Constantia, who strive to offer their clients personalised insurance solutions.

Risk pooling across markets and time periods have proven successful in alleviating this broad underwriting approach. “The impact of underinsurance is another point of concern,” he stressed, “particularly at local authority level but also with consumers in general.” When perils occur in these markets it often leads to financial ruin due to underinsurance, but premiums remain high in markets where affordability levels are low. 

“Broad-based and systemic peril models must be used to sustain public and private infrastructure,” Von Widdern said. “In doing so, assets and infrastructure can be maintained over longer periods, which means that limited local funds can be allocated to the social betterment of communities.”

In answer to some of the above issues, Constantia Insurance are designing various emerging market packages, including products like informal-housing cover and SME contractor mutuals. “These packages seek to protect communities, create more inclusive opportunities for clients and enable commercial development,” Von Widdern explained. 

This is in line with Constantia’s stance of “risk management first, then insurance”, according to Von Widdern. “The insurance policy is only a ticket to money, it doesn’t solve the risk,” he said. “We begin our executive committee meeting every two weeks with each member explaining how they added value to stakeholders during that time – at Constantia we are committed to that principle.” 

[WATCH: Highlights video of the African Insurance Exchange where the mentioned panel discussion took place]