Insurance linked to remittances might represent a large market opportunity for insurers, of up to around $1bn in the next 10 years, according to Swiss Re Institute.
The international money transfer business is an ideal channel to market insurance because existing clients are already focused on the financial security of their loved ones. For many migrants, "embedded" insurance would be their first insurance cover, says Swiss Re Institute in its report “Remittances: a source of resilience for emerging markets”.
In certain markets like the Gulf states, a remitter can choose to insure the transfer: the recipient receives a cash payment if the sender dies or becomes disabled. In rare cases, free micro-insurance is included in money transfer services, the report says. Over time, insurers could start to cross-sell other conventional products like auto, accident or renters' insurance. Those brands that can establish trust with migrants by offering simple and low-cost money transfer and insurance products will benefit most while also addressing the genuine needs of this important and emerging group of consumers.
According to latest sigma data, the insurance penetration rate for mortality (including savings) in emerging markets overall is 2%, compared with an advanced market aggregate rate of 4%. With low insurance coverage, households are exposed to financial stress in the event of, for example, having to make large out-of-pocket spending on healthcare. Also, many countries that are heavily reliant on remittances are exposed to natural catastrophes. A temporary increase in remittances can be an important shock absorber in times of stress and complement public-sector disaster financing.
Yet, to date, just a small portion of remittance payments is insured against the death or disability of a migrant.
Last year, remittance payments by migrants to loved ones in their home countries totalled $530bn (per World Bank estimates), surpassing other sources of inflows for low and middle-income countries.
Countries with the largest remittance inflows are those with big emigrant populations working in advanced economies. Central American, Middle Eastern and countries of the former Soviet Union are especially reliant upon remittances. In addition to sustaining consumption levels, remittances play an important role in times of stress.
Remittances to low- and middle-income countries are now larger than official assistance and private capital flows, and for many smaller economies can constitute more than 20% of gross domestic product. These countries include Egypt and Lebanon.