Microinsurance and Disasters: Steps to Take to Mitigate Risk Next Time

This paper was published by the United Nations Capital Development Fund in its newsletter, ‘"Microfinance Matters".

The paper talks about the benefits of microinsurance in mitigating risks for the low income people who lack effective risk management options. However, the existing product lines, and ill conceived products, do not fit the needs of the very poor; thus, there exists a need for more efficiently designed products.Poor people can benefit from insurance if right products are designed for their specific market niche. This would involve:

• Linking premiums to cash flows;
• Finding appropriate delivery channels;
• Implementing effective controls;
• Setting premiums based on different costs, as well as mortality and morbidity rates.

Designing the appropriate product should ideally involve the following steps:

• Adequate market research to ensure demand;
• Assessment of the institutional abilities and needs;
• Design of the product based on above research and self assessment;
• Pilot testing, roll out, evaluation.

Pilot testing is when the clients actually pay for the insurance. This stage involves:

• Formalizing the delivery structure;
• Finalizing the procedure manuals and computer systems;
• Training the staff in delivering the product;
• Having a clear understanding of the objectives of the test;
• Assessing the products resource capabilities like staff marketing abilities and effective product demand.

The author finally concludes:

• Renewals are a key indicator of demand, so pilots should run for at least one renewal cycle before sealing the product design;
• There is a need for low income market products that satisfy demand and are structured operationally and financially to withstand the test of time.