At last year’s International Conference on Inclusive Insurance, Minister of Finance and the Public Service Dr Nigel Clarke promised that he would be tabling microinsurance legislation this year in a bid to address the low penetration of insurance policies in Jamaica.

The International Association of Insurance Supervisors defines microinsurance as “insurance that is accessed by low-income population, provided by a variety of different entities, but run in accordance with generally accepted insurance practices”.

Delivering the keynote address during the conference held in Kingston, October 23-28, 2022, Clarke underscored that inclusive insurance is just as important as traditional inclusion given the need for new solutions that cater to the more vulnerable segments of society. Moreover, he pointed out how the occurrence of the COVID-19 pandemic had exposed fragilities in financial systems across the region, including Jamaica’s, presenting challenges to recovery.

While pointing out that Jamaica’s economy shrank by 10 per cent as a result of the pandemic, the finance minister said that the Government of Jamaica has taken a position to prioritise economic resilience as a principal aim given the country’s exposure to economic shocks, natural disasters and unforeseen events “due to the size, location and open nature of its economy”. However, he noted that reducing the country’s exposure to shocks and conversely improving its resilience would be no easy task.

“Developing risk-mitigation strategies and resilience to climate shocks remain a challenge. The penetration level of general insurance in Jamaica is low. Institutional ways of making insurance more accessible to Jamaicans is a priority. Without insurance, society risks bearing the social costs and financial inclusion will remain a challenge,” he explained to the audience at the conference.

With this in mind, Clarke announced that the Government would champion making insurance available and accessible to all in the society.

The minister’s position on microinsurance or inclusive insurance was not new. It was entrenched in the National Financial Inclusion Strategy which has at the heart of its mission to make financial services more accessible and available to the “disadvantaged and low-income groups of the population”.

According to the Financial Services Commission (FSC), “Microinsurance is one medium that is used to achieve the objectives of financial inclusion.” Recognising the importance of microinsurance to driving financial inclusion, the FSC has endeavoured to create an environment that promotes the development of microinsurance businesses in Jamaica. To this end, in 2015 the regulatory body established the Inclusive Insurance Committee to oversee the development of inclusive insurance in Jamaica, with a specific focus on microinsurance, and develop a microinsurance framework in Jamaica.

But why should Jamaicans care about insurance? How does having a microinsurance policy facilitate more financial inclusion for individuals in the vulnerable, low-income segment of society?

By virtue of Jamaica’s position in the Caribbean, the country faces the ever-present risk of natural disasters such earthquakes and tropical storms that could cause floods, damage to and destruction of property, as well as personal injury and death. Even without the natural disasters, the country still has a high incidence of collisions on the roads, a high crime rate, and a high rate of non-communicable diseases including diabetes, hypertension, and high cholesterol.

The risks therefore can place a burden on the pockets on the very vulnerable who may have to face the possibility of repairing or replacing damaged and loss property, health-related cost in instances of injury or sickness, and funeral costs due to the death of a loved one.

As the FSC puts it, “There is a growing need for persons in the lower-income population to gain access to insurance protection for the sustainability of their families. Additionally, major sectors, such as the agricultural sector, are faced by natural disasters and require some measure and mechanism to ensure continued development following the negative effects of disasters. Small farmers, as well as most persons in the informal sector, tend to rely on assistance from the Government after a disaster.”

It argued further that without insurance, it is possible that families may have to sell their assets or deplete their savings to address the adverse effects of the disasters and tragedies they face. On a societal level, the lack of insurance coverage and by extension insurance penetration can result in the destruction of wealth, loss of productivity and economic growth, loss of investment in human capital, and an overburdened health sector.

But given these risk factors, insurance coverage continues to be low. The Bank of Jamaica indicates that market penetration in terms of insurance premiums as a percentage of gross domestic product was in the range 4-5 per cent between 2012 and 2014.

In this regard, the central bank also recognises that the introduction of a microinsurance framework is one of the keys to building financial resilience and creating financial inclusion. Without it, it said, “Households struggle to be financially resilient as they lack the suitable and accessible savings, affordable insurance and retirement products.”

Still the BOJ highlights that progress is being made with regard to providing affordable insurance coverage. Despite the lack of a microinsurance policy in Jamaica, players in the industry have developed at least three microinsurance products in the market.

In 2021, GraceKennedy Insurance (GKI) launched GK Weather Protect, an insurance policy that offers farmers and fishers protection against the negative impact of heavy wind, rain and drought, calling it “a timely response to the plight of many in the agricultural sector who have suffered multi-billion-dollar losses over many years due to extreme weather conditions”.

Yet, while GK has made efforts to be a first mover in the microinsurance space, executive director of the Insurance Association of Jamaica (IAJ) Orville Johnson believes that more can be done and that more players need to come to market with products to increase insurance protection. He however remains confident that the introduction of a microinsurance law will catalyse the quick development of that segment.

Speaking to the Jamaica Observer, Johnson noted, too, that the low level of insurance penetration may be due to a lack of education and as such he called on insurance companies to push for financial literacy in this regard. He also pointed out that credit unions had begun work in the microinsurance space through CUNA Mutual.

According to a report coming out of the International Conference on Inclusive Insurance 2022, “In Jamaica, insurance can often be inaccessible, which has prompted the [Jamaica] Cooperative Credit Union League to offer affordable policies to all. Microinsurance is offered in partnership with CUNA Mutual.”

The insurance product is applied to loans offered by credit unions to cover instances of death or disablement of borrower.

“If you look at the Tourism Workers Pension Scheme, that too has a microinsurance component to it,” Johnson also told the Business Observer.

In the meantime, like Johnson, the financial sector awaits the passing of microinsurance legislation led by Finance Minister Dr Clarke, especially with Parliament resuming later this month and as 2023 winds up.