What impact will insurance have on remittance flows? (Photo: Wilhelm Heinz/IDB)
What is the market for remittance insurance? Three experts share their insights.
BY LATIN AMERICA ADVISOR Inter-American Dialogue
El Salvador-based money transfer operator Gigante Express and New Orleans-based insurer Pan-American Life on May 5 launched an insured remittance product that protects recipients in the case of the sender's accidental death. What is the market for remittance insurance? Will other insurance and remittance companies team up in the future? What impact will insurance have on remittance flows?
Ernesto Armenteros, Executive Vice President of Grupo Quisqueyana in the Dominican Republic: US and foreign insurance companies have been approaching MTOs for years, trying to find ways to adapt and sell their products to MTO customers. One of the ideas that has been around longer and has generated more interest is this policy where a recipient would keep receiving remittances for a period after the death of the remitter. Theoretically, the market for remittance insurance of this kind is as large as the remittance market itself. But making it available to all would take every MTO teaming up with enough insurance companies willing to adapt the terms of the policies to the wide spectrum of risk profiles that remitters represent. This is highly unlikely because not all profiles are desirable to insurance companies, and foreign insurance companies are limited by US licensing rules from approaching US residents, thus limiting competition that might be willing to offer services to those in less-profitable niches. [Despite that], I'm sure that other remittance companies and insurance companies will team up in the future, and other types of policies will become available to cover everything from health to education to death and disasters. The foreign-born diaspora living in the US is large and largely underserved by such services, and MTOs are the best vehicle to promote and deliver them.
Sergio Bendixen, President of Bendixen & Associates in Coral Gables, Florida: I think there's tremendous potential here, and it's not limited to insurance. As the flow of remittances continues to grow—although at a slower pace, it continues to grow to Latin America—financial institutions, governments, and even individuals are thinking about ways to leverage as much of that money as possible so that remittance senders and recipients have more access to basic financial products like insurance, mortgages, small business loans, and even education finance. This is just beginning. For now, most of the people who receive remittances spend it on daily needs, like food, housing, medicine, and clothing. But, we're now seeing a trend where many of these remittance recipients are telling us that they would like access to more financial products. I think the biggest barrier right now is the anti-immigrant environment that has developed in the United States, which is making life very difficult for all immigrants. It has led to many of them being so concerned about their future that they're not sending as much money as they used to for the first time since we've studied remittances. If that trend is allowed to continue, the dynamic that is bringing together insurance and remittances companies will not be as strong. Remittance insurance could impact the market for financial services by making remittances more likely to be perceived as continuous. In other words, I think banks and microcredit institutions will be more likely to make a loan if the borrower has a guarantee that the flow of remittances will not stop if the sender is not able to do so in the future. We also hear a lot of interest in what is called death insurance, which protects a remittance sender against funeral costs if something happens to one of their relatives. And they're always interested in health insurance.
Manuel Orozco, Director of the Remittances and Development Program at the Inter-American Dialogue: The offer of insurance products by money transfer operators (MTOs) and payers, such as microfinance institutions, is an emerging practice among businesses. In their efforts to expand and add value to their services, these companies realize that there is an increasing demand for these types of services. The seguro de remesa (remittance insurance) and seguro de repatriacion del cuerpo (body repatriation insurance) are two of the most common products offered in partnerships between MTOs and payers, and is a small life insurance product. People are also demonstrating interest in other products, such as medical insurance. Among migrant communities, for example, only 10 percent of migrants have some form of insurance and 50 percent self-medicate. Thus, MTOs are engaging insurance companies over ways to offer these services and sell affordable products to migrants or families. Microfinance institutions and banks are also following similar strategies in order to add value to their products.
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