MICRO-INSURANCE

Micro-insurance is defined by CGAP as “the protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved.” As with all insurance, risk pooling allows many individuals or groups to share the costs of a risky event. To serve poor people, micro-insurance must respond to their priority needs for risk protection (depending on the market, they may seek health, car, or life insurance), be easy to understand, and affordable.

Micro-insurance has grown out of the micro-finance movement, where savings, credit and other services have proven successful in helping low-income communities better manage their resources and create their own opportunities. While standard micro-finance products can provide some risk management, the subject of micro-insurance is attracting wide interest as a growing body of evidence demonstrates the potential benefits of micro-insurance for low-income houses and businesses that are traditionally excluded from conventional insurance services.

The intent of micro-insurance is to provide easily accessible insurance cover for small-scale assets at affordable premiums by keeping transaction costs low. The first micro-insurance programmes generally focused on health care and funeral cost products, with new developments and innovations not only improving existing products but also expanding to cover new risks like natural disasters.

Some of the general micro-insurance lessons learned from Columna’s experience include:

• The most cost-effective way to reach the low-income market is through organisations that already reach large numbers of the target market.
• The distribution of micro-insurance should therefore be implemented through microfinance institutions (MFIs), cooperatives, trade unions and the like.
• Insurance company shareholders should implement a policy on surplus that allows the company to grow and maintain good solvency levels.
• Benefits can be reaped from collaborations with international organisations that provide support, training and market information.
• A micro-insurance product must be simple and the premiums should be affordable.
• There should be a range of premium and benefit levels to make the product relevant to a higher percentage of the targeted market.
• Sales personnel must receive adequate training to promote micro-insurance products; printed promotional material should be simple to understand.
• An insurance company must establish a mutually beneficial relationship with its marketing and distribution channels.

Source: Columna Guatemala (CGAP Working Group on Microinsurance Good and Bad Practices Case Study No.5)