Effective Microinsurance Programs to Reduce Vulnerability

This paper was commissioned by the  Microcredit Summit Campaign in 2006.The paper provides an overview of the lessons learnt in providing insurance products to the poor, focusing specially on how to design products that meet the needs of clients. The paper:

• Emphasizes the importance of understanding client demand in the provision of any financial service to the poor;
• Explains how client demand is tempered with other factors such as regulations, the operational environment and insurance supply;
• Outlines a product development process and provides examples of how an effective product can be developed and implemented within a microfinance organization.

The paper presents some lessons learnt and some common features that are found in effective products. These include lessons:

• At the generic level that highlight the importance of product simplicity, a single price for all, choosing the correct distribution mechanism, making a choice between compulsory and voluntary products.
• For each type of product (e.g. life, property, health etc).

The authors argue that:

• There are a myriad ways to provide the poor with access;
• The two most frequently used models in micro-insurance are the mutual model and the partner-agent model;
• The distribution chain can be broken into distributor, administrator and risk carriers.

The paper concludes by considering some of the issues that the industry faces as it seeks to expand beyond mainly life insurance via microfinance loans and into the provision of insurance to the mass market.