A Business Case for Microinsurance: An Analysis of the Profitability of Microinsurance for Five Insurance Companies

This briefing note assesses the business case for microinsurance through case studies of five initiatives of insurance companies. It identifies four main drivers of profitability as scale, claims costs, acquisition costs and administration costs.

The study analyzes how the insurers balance these often competing aspects of the business using case studies. Findings include:

• Leveraging existing relationships, demand driven products, compulsory enrollments, affordable premiums, appropriate incentives to agents and client satisfaction are crucial for scale;
• Claims costs are managed mainly through the product design, risk pricing, and managing adverse selection and fraud risks;
• Working with partners with an existing client base and infrastructure can minimize acquisition costs;
• Simplicity of products, no or limited underwriting at the policy inception stage and efficient claim payment processes contribute to managing the administration costs;
• Continuous monitoring of product performance and the organizational structure of the insurer are additional factors that contribute to the viability of microinsurance initiatives.

The study concludes that an insurance company's ability to provide microinsurance profitably and achieve sustainable operations is often an iterative process. It also illustrates the importance of monitoring experience, continuously learning from the market, and making adjustments to the product and its pricing.

Please read the full paper here.