So, theoretically, micro-insurance covers market groups that are underserved, have little income, and have previously lacked adequate insurance coverage. Micro-insurance protects persons who have a modest income and find it difficult to maintain a life-cycle.
What are the products of micro-insurance?
Because of the strong demand and total potential profitability of the products, microinsurance has become an appealing area for many insurance providers in recent years. As a result of the rush to market, more stakeholders are launching new microinsurance products.
Micro insurers confront another form of difficulty linked to policy costs, in addition to increased competition.
The microinsurance business strategy is centered on low-premium plans, as previously stated. The policy expenses are not proportionate to the policy value or type due to this pricing limitation. To put it another way, micro insurers must offer low-premium insurance while accounting for the significant costs of underwriting and distribution.
Microinsurance providers are gradually increasing the use of digital technologies and platforms in their procedures to address this issue. Microinsurers are also reaping the benefits of MNO agreements, which allow them to streamline product delivery while reaching out to new clients in remote areas. In Ghana, for example, Tigo began selling consumers a life insurance plan that is included in their monthly cell phone subscriptions. The product was created in collaboration with Bima, a Swedish mobile insurance firm, Vanguard Life Assurance, a local insurer, and MicroEnsure, a specialty insurance company. Customers can get free life insurance for themselves and one family member under the basic insurance system. Customers’ insurance coverage is also determined by how much airtime they consume in a given month. Customers who want to upgrade their coverage can do so by paying an additional monthly premium, which provides them with additional life insurance for themselves and their families.
Partnerships with mobile money operators have also developed as a new approach for microinsurance firms to digitalize elements in the insurance value chain, such as premium collection and claim payments. Safaricom’s microinsurance business, as well as their leading mobile money system M-Pesa, is a good illustration of this. UAP Insurance, Britak, MicroEnsure, and GA Insurance are among the micro-insurers with which Safaricom has formed relationships. Weather index insurance for maize and wheat farmers, as well as personal accident, life, disability, and health insurance products, are among the microinsurance products available. Microinsurance carriers can use M-mobile PESA’s money transfer service to accept premium payments directly from policyholders through these partnerships. FrontlineSMS and PaymentView, two integrated open-source software tools, are also used to manage, monitor, and alter policies.
Microinsurance providers appear to regard technology-based integrations in the microinsurance experience as a real potential to expand their business and reach more clients. According to a Cenfri survey, Ghana, Kenya, Nigeria, Rwanda, South Africa, Tanzania, and Uganda each have 277 unique internet platforms. And insurance products are already available on 20 of these platforms.
Finally, there is no doubt that microinsurance is a promising market with rapid expansion in both operations and innovation processes. While cost restrictions continue to be a major barrier for micro insurers, recent initiatives illustrate how stakeholders are working to expand micro-scope insurance’s and viability as a separate and profitable sub-sector.
What is the biggest role of micro-insurance?
- Individuals without retirement savings or adults in low-income households are covered by the majority of microinsurance policies.
- Microinsurance products are designed to compensate for lower-valued items or assets in the event of illness, injury, or death.
- The provider-driven approach, full-service model, community-based model, and partner-agent model are the four basic methods for offering microinsurance.
- Microinsurance, like conventional insurance, is offered for a wide range of risks, including health, term life, death, disability, and even crop and livestock insurance risks.
Who provide micro-insurance?
To promote insurance coverage among economically vulnerable parts of society, the Insurance Regulatory and Development Authority of India (IRDAI) has introduced a specific type of insurance plans known as micro-insurance policies.
What is the concept of micro-insurance?
- Microinsurance is a type of insurance with minimal costs and coverage limits. “Micro” refers to the small financial transaction that each insurance policy generates under this definition. “General micro insurance product” means any term insurance contract with or without return of premium, any endowment insurance contract, or any health insurance contract, with or without an escrow account, as defined in Schedule-I appended to these regulations; and “life microinsurance product” means any term insurance contract with or without return of premium, any endowment insurance contract, or any health insurance contract, with or without an escrow account, as defined in Schedule-I appended to these regulations. Microinsurance is defined by the product attributes, according to the Indian Insurance Regulatory and Development Authority (IRDAI). Their definition for microinsurance agents, individuals appointed by and operating on behalf of an insurer, for the marketing of microinsurance products, adds to this (and only those products).
- Microinsurance is a financial arrangement that protects low-income people from specific risks in exchange for regular premium payments that are proportional to the risk’s likelihood and cost.
- Micro-insurance does not refer to: I the size of the risk-carrier (some are small and even informal, while others are very large companies); (ii) the scope of the risk (the risks themselves are by no means “micro” to the households that experience them); (iii) the delivery channel: it can be delivered through a variety of channels, including small community-based schemes, credit unions, or other types of microfinance institutions, according to the author of this definition.
- Community health funds, collective health organizations, rural health insurance, revolving medication funds, and community involvement in user-fee management are all examples of community-based finance methods.
- The majority of community funding schemes arose in the face of severe economic restrictions, political instability, and poor governance. The active participation of the community in tax collecting, pooling, resource allocation, and, in many cases, service provision is a common trait of all.
- The use of insurance as an economic instrument at the “micro” (i.e., less than national) level of society is known as microinsurance. This definition combines the aforementioned techniques into a single conceptual framework. It was first published in 1999, predating the other three techniques, and is credited with being the first time the term “microinsurance” was used. Microinsurance decisions are taken within each unit, according to this definition (rather than far away, at the level of governments, companies, NGOs that offer support in operations, etc.).
Microinsurance, like insurance, operates on the notion of risk pooling, despite of its small unit size and operations at the level of particular communities. Microinsurance connects several tiny units into bigger structures, forming networks that improve both insurance functions (by expanding risk pools) and governance support systems (i.e. training, data banks, research facilities, access to reinsurance etc.). This mechanism is envisioned as a self-contained entity, free of external financial lifelines, with the primary goal of pooling the risks and resources of entire groups in order to provide financial protection to all members against the financial repercussions of mutually defined hazards.
As a result, the final definition incorporates the key aspects of the preceding three:
- The network of microinsurance units’ primary function is to improve risk management for members of the total pool of microinsurance units beyond what each can do as a stand-alone entity.
What are the two faces of micro insurance?
A micro-insurance plan is a contributory scheme that employs the insurance mechanism, among other things. It’s intended to satisfy the most pressing social protection needs of persons who aren’t covered by traditional social security systems, such as informal sector employees and their families. Membership is voluntary, and members contribute at least a portion of the necessary contributions to cover the benefits.
Mutual benefit organizations, non-governmental organizations, microfinance institutions, and commercial insurers can all run microinsurance schemes. All functions are administered by one company in some circumstances; in others, they are shared by two or more companies, as in partner-agent agreements. These units normally operate on a local level and are based on a person’s location, occupation, ethnicity, or gender. Typically, these organizations are already structured, for example, to provide microcredit; microinsurance is just an extension of their existing activity. They may also receive financial assistance from the government, international aid agencies (particularly seed money), and, in some situations, state-owned insurance firms. Members’ participation (for example, establishing priority needs, determining insurance premiums, managing and supervising the scheme, and so on) may vary depending on the scheme’s structure.
Life microinsurance (including retirement savings plans), health microinsurance (hospitalization, primary health care, maternity, etc. ), disability microinsurance, property microinsurance (assets, livestock, housing), and crop microinsurance are the most common microinsurance products (uncontrollable adverse events).
Many microinsurance programs have only been around for a few decades and are still in their infancy. Bangladesh, Benin, Burkina Faso, Côte d’Ivoire, Ghana, Guinea, Mali, Morocco, Nigeria, Philippines, Senegal, United Republic of Tanzania, Togo, Tunisia, and various Latin American countries are among the countries in which they operate. The Self-Employed Women’s Association (SEWA) in India has devised a program that protects over 32,000 women who work in the informal economy.
Microinsurance schemes have a number of advantages, including the ability of microinsurance organizations to mobilize additional resources and establish a legitimate demand for services, as well as the ability to better focus public subsidies to low-income groups. Microinsurance plans, on the other hand, are not intended to become the primary pillar of a country’s social security system, and numerous obstacles remain. Some are related to external restrictions and delivery difficulties, while others are related to existing product flaws, people’s perceptions of insurance in general, and ultimately, insurance regulations or their absence. Establishing the conditions under which microinsurance companies can better organize themselves and how their activities might be reproduced on a larger scale is critical.
Which of the following are the issues with micro insurance?
In India, the microinsurance market has done exceptionally well in recent years, with significant increases in both value and volume. Nonetheless, it has numerous systemic, institutional, operational, and financial obstacles. They can be told in the following order:
- Micro insurance operators and their distributors are still unable to determine whether this activity/business should be sustained as the primary source of revenue or should be limited to side projects.
- The lack of financial literacy among rural and village residents, which prevents them from understanding the required insurance policy and choosing the wrong one. As a result, a lack of insurance literacy among the general public inhibits the growth of microinsurance activities.
- Rural microinsurance is riskier than standard insurance, thus corporations are less interested in expanding quickly.
- Microinsurance demand and supply are vastly out of sync, particularly in rural areas. This also stifles the growth of the microinsurance industry in our nation.
- In our rural community, people’s general awareness of insurance and product features is quite low, which hinders the expansion of microinsurance.
- Many microinsurance products fail to address issues such as unfavorable product selection, moral hazard, and transactional fraud.
- Progress in regulation that is beneficial for consumer protection and service provided by micro insurers is still needed. The regulations should be adaptable and straightforward for the rural population to comprehend.
- In a rural location, the distribution of insurance goods by a micro insurer is challenging, resulting in high costs and impeding the development of rural micro insurance.
What makes micro insurance different?
Microinsurance, like any other type of insurance, protects against loss. Microinsurance, on the other hand, is targeted at a specific market: low-income people. As a result, it necessitates a new set of parameters in terms of product development, marketing, pricing, and distribution.
Why do we need micro insurance?
They’re an easy-to-use risk-management tool for reducing financial susceptibility in difficult times.
The low cost of such programs encourages people to reach out in a more coordinated manner.
The policyholder’s financial liability is covered by microinsurance, depending on the plan chosen.
How can microinsurance be improved?
According to McCord, a $1,000 life insurance coverage in Uganda presently sells for just $1. He estimates that 135 million individuals are covered by low-cost insurance policies.
This graph depicts the growth of microinsurance in Africa. Other regions, such as India, Bolivia, and small island states, have their own stories about how microinsurance began and where it is now. All of these places share the same unanswered issue concerning the future of microinsurance: will it sink or soar?
We discussed some of the advantages and disadvantages of microinsurance last week. This week, we’ll practice using our explorer lens to view what’s on the horizon. Microinsurance’s future prospects.
Microinsurance, if properly developed and implemented over time, can help low-income groups minimize their total vulnerability and enable them stand on their own while experiencing economic and lifestyle improvement. Microinsurance can be a successful niche for commercial insurers as well, if the correct model and strategy are implemented over time.
Between 2008 and 2018, 500 million microinsurance plans were sold over a ten-year period. However, a significant fraction of the estimated 4 billion consumers remain uninsured and trapped in poverty.
The Microinsurance Centre estimates that the microinsurance market will reach 1 billion policyholders in the next decade. This is seven times the current market capitalization. However, the path is not without its difficulties and stumbling blocks. For example, in the field of:
Credit life insurance is frequently chastised for being costly and for attempting to protect credit portfolios rather than providing true value.
The high expenses of filing claims and determining losses are a problem. As are the high distribution expenses and the need to avoid fraud.
To begin with, poor individuals lack access to quality healthcare, which restricts the usefulness of health insurance. The cost of addressing claims is high. It’s tough to control fraud and moral deception, just as it is with agricultural insurance.
These problems are important because they have the potential to tip the balances in favor of or against microinsurance in the future. They cannot be omitted from the discussion when it comes to the same.
A better strategy would be to confront them head-on and take the required actions to ensure long-term success. The imposition of thorough and systematic regulatory procedures is one of them. Apart from them, the following techniques will help microinsurance advance:
- Developing new business models and improving existing ones. The more unconventional the delivery method, the more likely it is to succeed.
People may easily stay linked to each other and to the ‘outside world’ thanks to the internet. It is the medium and direct cable line for insurers to reach people in rural areas who require the safety and protection of microinsurance. Microinsurance has a real potential of taking off if the above measures are implemented.
Microinsurance mobile intermediaries frequently collaborate with mobile network operators (MNOs) to provide free and paid products to MNO customers. Aside from premium collection, payments, and client support, intermediaries also manage product development and claims administration. The ever-increasing digitization will ensure that the 1 billion mark is met. Perhaps even sooner than the projected ten years.
What are the types of microinsurance?
Accidents, agriculture, credit life, health, life, and property are some of the most popular types of products covered by microinsurance providers. Agriculture microinsurance is the fastest growing product in terms of premium underwriting, followed by accidents and health (Churchill & Merry, 2017).