Microinsurance Products

Publication Date: Oct 2004
Published by: Kreditanstalt fur Wiederaufbau (KfW)
Document Type: Presentation

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Can micro insurance products impact the vulnerable sections of the society?

This presentation discusses the risks that the lower-income groups are vulnerable to, the options they have to cope with these risks, the various micro insurance products available to them and the effectiveness of these products.

• Death, health, disability, property, agriculture and mass co-variants are the major risks:
  • The informal coping methods used so far are usually not available when needed;
  • Formal financial services can offer greater benefits at lower costs than informal mechanisms.
• Credit and savings are more flexible than insurance, but they cannot address large losses.

• Credit life, the most common and successful product, ensures that “debt dies with the debtor”.
• Term Life/ Personal Accident provides a payout if the borrower dies. Sometimes it also covers spouse and dependants.
• Life Savings Insurance is simple to manage, has low transaction costs;
• Property Insurance is often linked to a loan and is most commonly used for livestock;
• Endowments combine long-term savings and insurance with emergency loans against the savings balance; premium payments accumulate value;
• Agriculture Insurance faces a large number of uncertainties;
• Health Insurance is limited to hospitalization; it has the greatest demand, but is also the most difficult to deliver, because
  • additional player involved,
  • prone to moral hazard, adverse selection and over usage problems,
  • not commercially viable.
  
  The presentation concludes that micro insurance can be enabled by:
  • Reducing transaction costs;
  • Managing adverse selection, moral hazard, fraud and over usage;
  • Creating an enabling regulatory environment;
  • Developing sustainable health, property and agriculture products;
  • Overcoming natural resistance and educational barriers;
  • Getting commercial insurers interested in the low-income market.