Today with us we have Susan Holliday, Principal Insurance Specialist at the International Finance Corporation (IFC), all the way from Washington DC. Susan has over thirty years of experience in the insurance industry and specializes in insurance and insuretechs. We will be discussing how to unlock the future of blockchain and the opportunities for insurers in emerging markets.

 

Blockchain in two minutes

While there are different blockchains with slightly different features, blockchain is centered around two key features:

* It is a distributed ledger. This means it has numerous nodes and, if one part of the blockchain experiences an error, the rest of the blockchain remains operational.

* The transactions are processed in blocks. Each block is linked by a hash (a cryptographic function) and is immutable. This means it is completely transparent and users can trace every transaction.

 

The International Finance Corporation

The IFC is the World Bank’s private sector arm. It is government-funded, with nearly all governments of the world being shareholders of the IFC. Its goal is to invest in emerging markets to alleviate poverty and increase shared prosperity. It achieves this by considering both the financial returns and the developmental potential of a prospective investment. The IFC helps companies grow and brings in private sector investment. Following a project’s completion, it exits its current investment and uses the profits to continue its work in other areas.

Insurance plays a fundamental role in achieving the IFC’s goal by helping companies and individuals become more resilient. People can then establish businesses more easily, take on risks and better cope with the financial difficulties of a natural catastrophe or a death in the family.

The IFC works within all classes of insurance. It has invested in commercial line companies, reinsurers and personal line companies including non-life, life and health. Insuretechs are also becoming an increasingly important part of the IFC’s portfolio.

 

Insurance penetration in emerging markets

One of the challenges of emerging markets are the very low insurance penetration rates. While there are protection gaps everywhere, insurance penetration, which is measured by premiums versus GDP, is typically lower in emerging markets.

There are three main reasons emerging markets have low insurance penetration rates.

 

1. Natural catastrophes

Some emerging markets are exposed to various natural catastrophes for which they are largely uninsured. This is an increasingly big problem and the IFC is actively looking to provide solutions to climate risks. However, this is not the root cause as countries with a higher insurance penetration can also have a high catastrophe exposure.

 

2. The insurance trust deficit

In many emerging markets people are either unaware or distrustful of the insurance industry. Some of this distrust stems from historical examples of companies writing business with no intention to pay out valid claims or intermediaries who defrauded clients. Part of the blame, however, rests with the current state of the insurance industry. Products developed over fifty years ago are not well-suited to the needs and day-to-day problems of people in emerging markets.

The solution to this is customer-centricity. Companies need to pay more attention to the needs of clients to develop new and better-suited solutions.

 

3.