This week the CEOs of companies managing almost USD $15 trillion of funds gather in Singapore for the 42nd General Assembly of the Geneva Association.
This annual meeting includes the leaders of some of the largest financial institutions. Their debates and decisions shape global investment flows and address some of the world's most pressing issues. Why, then, is the opening morning's focus on 'Closing the Protection Gap', a topic that sounds noble but hardly an overwhelming business imperative?
For the insurance industry, emerging markets are the new drivers of growth, and the fundamental hope for offsetting a global low-yield environment. Emerging markets have a 40 percent share of global GDP, but contribute only 17 per cent of the world's insurance premiums - and filling this social protection gap is a vast financial opportunity.
According to the World Bank, the 4.5 billion people living in these markets have a combined purchasing power of $5 trillion. With insurance protection in any one market typically extending to just 2 percent of the population, half of humanity stands ready to be served.
Two trends have made it viable for the industry to make inroads into this marketplace: new technologies and the radical growth of social-but-commercial infrastructure in liberalized economies.
In just a decade, mobile phones have become ubiquitous and billions of people, many in rural areas, have been added to the grid - entering a global economy to which they were once invisible. By 2020, 80% of people will have access to a smart phone, up from 50% today. Financial services and other products are surging across this infrastructure (think Alibaba).
In the past, selling a thousand policies at $4 each may have been socially admirable but not financially viable. Now, using mobile and data, companies can sell targeted policies to tens of millions of consumers. Scale matters.
Launched four years ago, Bima Mobile (a LeapFrog investment) already reaches 10.4 million people with insurance in 14 countries, through mobile network operators such as Robi, Dialog and Tigo. Fully 98 percent of these people in Africa, Asia and Latin America were previously unreached by insurers. Bima is already profitable in several markets. That is in part because mobile technology also reduces both transaction costs and upfront payment barriers: In Haiti, Bima offers life insurance at a premium of $1 per month (for $1,000 dollars in cover); premiums are deducted almost daily at an affordable 4 cents per day.
The second trend is the radical growth of social-but-commercial infrastructure. As economic liberalization unfolded, governments retreated from providing comprehensive social protection, instead promising to help enable businesses and nonprofits to fill this gap in protection.
Some businesses leapt at the opportunity, changing both social infrastructure and mindsets. Millions of people who previously received no or sub-optimal protection (and were treated often as passive beneficiaries of aid) became customers, buying valuable products and services that also made profits for the companies selling them.
A good example is the Mahindra Group, which after liberalization swiftly became one of India's highest ROE conglomerates. As the world's largest producer of tractors, it then mobilized its extensive low-cost rural infrastructure and trusted brand to establish a listed $5 billion financial services company serving millions of low-income Indians.
In India, over 3% of the country's 1.2 billion people fall into poverty annually because of health events. That is larger than the population of Australia or seven times that of Singapore, impoverished every year.
Last year, Mahindra Insurance Brokers, a subsidiary of the group (and a LeapFrog investment), rolled out a $2 per month health insurance policy. Demand proved so strong that within a year, a million people have been reached. The product is profitable because of Mahindra's vast infrastructure. More broadly, the company is now reaching nearly 8 million people with insurance.
Home-grown innovators like these are making it possible to mine the protection gap at tremendous scale. The global giants of the industry have followed, making acquisitions to build their footprints. Prudential Plc, Swiss Re and AXA all took stakes in leading African insurers last year.
As companies expand in-market, populations once dismissed as 'the poor' will become numerically, inevitably, the largest group of customers in the world. This also has implications for developed societies, where large pockets of under-insurance are both a risk and an opportunity in otherwise lower-growth markets.
Beyond commercial opportunity, there is an emerging systemic imperative. Last month, IMF chief Christine Lagarde spoke about the 'new mediocre' economic growth. While the world's economy has grown at 3.5% in the past three years, the quality of that growth is worrying and developing economies are not growing near their potential. Lagarde pointed to the need to boost productivity and investment, or joblessness and instability will result.
This is why the topic of closing the protection gap is so crucial and timely, for both insurers and societies: financial services such as insurance, pensions and savings enhance both the stability and the growth of the global economy.
Knowing that the proverbial rainy day is taken care of, farmers can plant new crops, shopkeepers can expand inventories, and families can send daughters to school. They become not just consumers, but billions of producers and employers.
Dr. Andrew Kuper is Founder and CEO of LeapFrog Investments, an investment group focused on high-growth companies in Africa and emerging Asia. Portfolio companies now reach 44 million people across 20 countries with empowering financial tools.