By comparing weather events against historical averages in real time, MiCRO’s index-based insurance model automatically sends payments to policyholders.
Today, 4 billion people around the world are uninsured. In Guatemala, where hurricanes, landslides, and volcanic activity are all common occurrences, a lack of insurance can spell catastrophe for the country’s most vulnerable residents.
In 2010 alone, two disasters — Tropical Storm Agatha and the eruption of the Pacaya volcano — caused an estimated $1.55 billion in damage. Considering the rural poverty rate of 80%, Guatemalans often find themselves unable to purchase the insurance that could protect their livelihoods in the case of disaster.
The MiCRO Model
The Microinsurance Catastrophe Risk Organization (or MiCRO) seeks to bolster citizens against this risk. MiCRO breaks away from the traditional insurance mold in which losses are approved by an insurance adjuster on a case-by-case basis. Instead, this reinsurance startup has partnered with Swiss Re to offer index-based insurance that uses predetermined indicators, like rainfall levels and earthquakes, in order to quickly send out an automatic payment to beneficiaries in the area. This specialized, low-cost insurance helps protect the livelihoods of those most vulnerable to weather-related property damage.
Advances in data technology over the past decade have allowed MiCRO’s new model to operate successfully. Satellites, for example, can pinpoint the amount of rainfall within a one kilometer square area over a specific period of time. This data can then be compared against historical averages to determine the severity of the event and appropriate compensation for policyholders.
Technology hasn’t been the only barrier to entry for MiCRO, however — residents of Guatemala are new to the world of insurance in general, and earning their trust takes time. “The intended customer typically has never used insurance before, so we work closely with our local partners to provide information about how it works, and how their policy covers them during specific catastrophic events,” explains MiCRO CEO Carlos Boelsterli.
This innovative approach has helped make it commercially feasible for insurers to cover other low-income, traditionally underprotected areas. MiCRO has reached nearly 65,000 microfinance clients in Haiti, who have received a total of $8.8 million after disasters like Hurricane Sandy and Tropical Storm Isaac. MiCRO hopes to reach up to 5,000 people in Guatemala over the next year, and would like to continue its expansion to cover 250,000 people across Central America by the end of 2019.
The Data-Driven Future of Insurance
Insurtech companies like MiCRO provide specialized, data-driven solutions that offer a convenient, low-cost alternative to traditional insurance. In time, MiCRO’s work in Central America could determine the future of the insurance industry at large.
MiCRO isn’t the only disruptive force in today’s insurance market, however. In response to pressure from other innovative insurance models, traditional insurers have begun to set up their own insurtech ventures. For example, insurance titans Liberty Mutual and USAA are backing online auto insurance claim service Snapsheet, and the 125-year-old insurer Allianz recently launched an insurtech product development branch called Allianz X. These developments demonstrate that a commitment to innovation and improved service for policyholders can impact even the most slow-moving and deeply embedded insurers in the market.
At the end of the day, companies like MiCRO stand to make a palpable difference in the quality of life of billions of people worldwide. In our data-driven world, insurtech solutions might just alter the landscape of the insurance industry as we know it.