Microinsurance provides low-income households with protection against shocks that could become catastrophic, helping to ensure financial security and keep families on the path towards prosperity.
Microinsurance has traditionally been distributed through microfinance institutions (MFIs) and community-based organizations; however, technological innovations make expanding distribution more straightforward in emerging markets.
1. Access to Capital
Microinsurance was developed to meet the needs of individuals who were neglected by commercial and social insurance systems; such as those employed in informal economies with irregular incomes and limited cashflow.
Finding insurance solutions tailored specifically for these clients requires taking an innovative approach both in terms of products offered and delivery methods. Insurers need to be able to quickly deliver policies within budget constraints while being responsive enough to resolve claims on site quickly.
Insurers must also invest in infrastructure and partnerships, with an eye toward long-term strategies aimed at helping low-income customers emerge from poverty. They can do this through customer education programs or offering loyalty rewards; alternatively they could use lesser known mechanisms such as proxy underwriting or group policies to reduce moral hazard or adverse selection.
2. Scalability
Microinsurance requires a different mindset in order to develop, expand and sustain it successfully – from redesigning products as simple and affordable to developing administrative strategies that enable scale. Furthermore, creating strong relationships with both distribution channels and communities served is key.
Insurance marketing and communication must take an approach tailored to this niche audience if insurance is to reach it successfully. Trust must be developed through storytelling or by sharing real world experiences through radio shows or TV series plots.
Pioneer Insurance and its partner microfinance institution Card MRI showed customers their commitment by visiting affected homes after Typhoon Haiyan struck in the Philippines to quickly pay out claims and immediately settle claims – showing customers that insurance really does work and acting with integrity.
3. Partnerships
As the global microinsurance market develops, insurers from emerging markets present opportunities for insurers in the global north to work together with them and reach excluded populations. Pulvermacher gave examples such as BIMA – a mobile provider who works with alternative distribution channels to offer microinsurance – and MicroEnsure, who provide digital microinsurance policies across Africa and Asia.
Microinsurers face many obstacles in offering microinsurance policies, from devising distribution systems that reach lowincome markets and creating products to address their needs – to providing affordable premiums with enough insured amounts and understandable policy language.
Additionally, they must understand the context and motivations of lowincome consumers, including addressing demand for expensive health-related services that aren’t covered by basic microinsurance and pose a barrier to poverty reduction in developing countries. They must also assess potential index insurance products at micro and meso levels that support risk aggregators such as microfinance institutions, agribusinesses or national export companies.
4. Innovation
There are many obstacles to achieving profitable microinsurance. Profitability requires selling many small policies at high transaction costs for both insurers and customers; additionally, low income markets often lack trust or understand these products which further inhibits profits.
To overcome these barriers, insurers must create innovative products tailored specifically to the needs of their target markets. This may involve partnering with microfinance institutions, rural banks, savings and credit cooperatives or community organizations who understand the local population better than anyone.
Partnerships allow insurers to expand their client bases while meeting distribution challenges, but for sustainability to be realized they must also consider trade-offs between coverage, costs and price – this ensures policies remain affordable to poor people while being readily available when needed – something which has helped propel microinsurance’s impressive growth over the past decade.