Is microinsurance working? Here the author puts forth the issues that impede the success of insuring the very poor and how we might begin to approach them differently.
Depending on who you talk to, microinsurance is
either
an extraordinary opportunity—the 500 million lowest-income policy-holders currently insured will likely double to over one billion by 2020: annual growth rates are 10% in some African countries and 15-20% in India, according to the ILO’s Microinsurance Innovation Facility’s Protecting the Poor, Current Trends in Microinsurance.
or
this relatively inexpensive way for very poor people to protect themselves and their livelihoods and is one of those North-Meets-South conundrums that no one has really figured out yet.
The large northern insurance companies, faced with sluggish growth and aging and unprofitable demographics at home look with increasing favour upon the much younger 2.3 billion in the developing world who can pay little and often pay irregularly, but nevertheless represent far more encouraging prospects in life, health, disability, crop, weather, and asset protection.
There is also a growing entente cordiale in many emerging markets—where regulatory constraints are often less stringent—between governments, telecoms, banks, non-governmental agencies, and insurance groups to develop mutually profitable solutions and open new distribution channels for the previously uninsurable.
Tigo, a phone carrier in Ghana, partners with MicroEnsure to offer more life insurance options with increased mobile use. Easypaisa, a Pakistani branchless banking service, and a unit of Norway’s Telenor Group are launching free life insurance for their clients in cooperation with Adamjee Life. Meanwhile, India’s Insurance regulator IRDA has relaxed written bank confirmation requirement as a proof of residence for rural micro-insurance policy seekers.
And yet nagging doubts seem to remain. We’ll look first at why customers hesitate to sign up.
Other issues impede the success of ensuring the very poor as well. MicroSave addresses them in detail in Securing the Silent: Microinsurance in India, the world’s largest microinsurance market (of the estimated 500 million current policyholders, well more than half are in India). This is where you turn to understand costs, profitability, and the long-term sustainability of microinsurance in a country where credit is still the real driver of microfinance and claims ratios can exceed 100%. In too many instances, the bold new initiatives, starring large insurance companies and local microfinance institutions, have detoured and become merely operational risk covers for the MFIs.
A MicroSave India Focus Note Challenges of Microinsurance outlines the strategic and insurance product issues, including low penetration and low commissions in many markets versus relatively high fixed costs of administration and distribution, high risk for the underwriters, and the distribution problems migratory populations impose. You can also read more about which microinsurance products sell well (or poorly), where, and why and the evolution of market trends in these reports.
Microinsurance is an important alternative to the Faustian pact borrowing seems to represent in many low-income communities. These publications help explain the financial and regulatory underpinnings of what goes wrong with the partnerships and policies, the reasons why, and how we might begin to think about them differently.
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