Microinsurance, the provision of insurance services to low-income people, can help poor households protect themselves against the risks and shocks that life inevitably brings. Without access to risk mitigation tools, insurance or adequate social security services, poor people are extremely vulnerable and ill-equipped to meet unexpected and potentially devastating losses. The ILO estimates that no more than 20% of the active population in many developing countries are covered by public social security systems, with the situation especially severe in sub-Saharan Africa and South Asia at only 5 to 10%.

Provided by formal or informal insurers, microinsurance can complement the state’s role in providing social protection by reaching vulnerable groups. It can also help stimulate regulated insurers (especially commercial) to serve the low-income market.

Demand. Despite the growth of the sector, limited market research and actuarial data is available to accurately assess demand and help design products that are affordable and provide good value for low-income people. While much remains to be done, several initiatives are helping to address this information gap:

High Client-value Products. Current insurance products are often not well adapted to poor and low-income people’s needs. While commercial insurers are increasingly entering the market, they typically “downscale” their existing products rather than develop new, responsive products for the sector. Most commercial insurers only offer life insurance and accidental death and disability products, as these are more likely to be profitable. Such products do not always provide real value to the poor: they do not meet their most pressing needs, premiums are overpriced and claim levels are often very low. Recent papers from the ILO’s Microinsurance Innovation Facility and the Microinsurance Center address this issue, suggesting ways to move beyond credit life insurance, and improve product development. Several tools have been developed that focus on understanding and measuring the role and value insurance provides to clients, including the ILO’s PACE (Product, Access, Cost and Experience) tool, Microinsurance Center’s Client Math, and the key performance indicators developed by ADA, BRS and the Microinsurance Network.

Distribution Channels. Microinsurers have often targeted microfinance institutions as distribution partners, due to their ready pool of clients and experience conducting financial transactions, but they are now increasingly seeking alternate distribution channels, such as religious organizations, cooperative societies, retail stores, or utility companies. Identifying and building well-performing distribution channels is crucial to achieving the large scale needed for the economics of insurance to work and reaching the majority of the world’s poor who do not have access to formal insurance services.

As an example, MicroEnsure, a fully owned subsidiary of Opportunity International, acts as an intermediary between insurance companies and a variety of delivery channels, including MFIs, NGOs, retailers and mutuals, and offers efficient back-office administration support to both sides. Serving over 4 million clients in 10 countries with a range of insurance products, it leverages the portfolios of several channels and mobile technology to achieve the best terms and conditions.

Alternative (“passive”) distribution models are also being tested in Brazil, Colombia, South Africa and India, and a recent paper from CENFRI and the Microinsurance Innovation Facility extracts lessons on successes and failures from both a consumer and business perspective. 

Regulation, Supervision, and Policy Environment. Regulatory, supervisory, and policy issues are critical to the responsible development, delivery, and administration of insurance services for low income people. Recognizing the importance of inclusive insurance markets, in 2011 the International Association of Insurance Supervisors (IAIS)—the global standard setting body for insurance services—co-drafted a “Guidance paper on regulation and supervision supporting inclusive insurance markets” in collaboration with the Regulation, Supervision and Policy working group of the Microinsurance Network.

In addition, the Access to Insurance Initiative is a global program designed to strengthen the capacity and understanding of insurance supervisors, to facilitate their role in expanding access to insurance markets, and to support the implementation of sound regulatory and supervisory frameworks consistent with international standards.

As microinsurance products become mainstream, CGAP is helping develop a consumer protection framework for microinsurance that includes workable regulation to improve transparency, fair treatment, and recourse in microinsurance markets.

Topic Contact: Alexia Latortue, Aude de Montesquiou

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