3 min read
The roots of microinsurance go back to the 1990s. It began in the form of charity when the International Labour Organization began experimenting with ultra-cheap policies. In 1995 backed by AIG, McCord had developed a commercial microinsurance product that he planned to sell through a microfinance institution in Uganda.
According to McCord, today a $1,000 life insurance policy sells for just $1 in Uganda. An estimated 135 million people are covered by cheap insurance policies, he says.
This is a snapshot of how microinsurance grew in Africa. Other regions- India, Bolivia, small island nations, etc.- have their own stories of how microinsurance started there and what its current status is. What all these regions have in common is the lingering question about the future of microinsurance- will it sink or will it soar?
Last week, we highlighted some of the pros of microinsurance against its cons. This week, we’ll take our explorer lens and train them on what we can see on the horizon. The future of microinsurance.
Why microinsurance matters
If implemented right and in the long term, microinsurance can help to reduce the overall vulnerability of low-income groups and help them to stand on their feet while experiencing economic and lifestyle development. For commercial insurers as well, microinsurance can turn out to be a profitable niche if the right model and right strategy are applied in the long term.
During a 10-year period, between 2008 and 2018, 500 million microinsurance policies have been sold. However, a large portion of the estimated 4 billion consumers are still uninsured and still stuck in the quagmire of poverty.
The future of microinsurance
According to the Microinsurance Centre, the microinsurance market could grow to 1 billion policyholders in the next decade. This is 7 times today’s market size. But, the road is fraught with challenges and hurdles. For instance in the realm of:
The compulsory credit life insurance is often criticised for being overpriced and also for seeking to protect credit portfolios instead of providing actual value.
High costs of claims handling and loss assessment are a problem. As are the high costs of distribution and avoiding fraud.
First off, poor people don’t have access to good healthcare facilities which limits the effectiveness of health insurance. Claims handling is expensive. Akin to agricultural insurance, it is difficult to control fraud and moral deception.
These challenges matter because they hold the potential to shift the scales- either positively or negatively- when it comes to the future of microinsurance. When discussing the same, they cannot be excluded from the discussion.
A better approach would be to meet them head-on and take necessary steps for long-term positive impact. One of these is to impose comprehensive and systematic regulatory approaches. Apart from these, the following strategies will propel the advancement of microinsurance:
- Providing incentives to commercial insurers to invest in low-income markets
- Conducting market education programmes
- Developing infrastructure to implement catastrophic risk insurance approaches
- Offering real value for money
- Coming up with new business models and refining old ones. The more unorthodox the delivery channel, the better the chance it might have of working.
Where hope lives
The internet has made it easy for people to stay connected to each other and to the ‘outside world.’ For insurers, it is the medium and the direct cable line to people in remote locations who need the safety and protection of microinsurance. Coupled with the above strategies, microinsurance has a true chance of soaring.
Microinsurance mobile intermediaries typically partner with mobile network operators (MNO) and offer free/ paid products to the MNOs customer base. Apart from this, intermediaries also handle premium collection, payments and client servicing, product development, and claims administration. The ever increasing digitalisation will ensure that the 1 billion number is reached. Maybe even quicker than the estimated 10 years.
The hour calls for easy accessibility of microinsurance. The future can be hinted at but it can only be created through conscious and strategic steps. Subscribe to the Spixii newsletter to keep updated with how the microinsurance future is turning out to be!