What is Microinsurance?

This is the first in a series of short notes exploring the exciting new expansion of access to financial services.This note discusses new innovations in the field of microinsurance that hold the promise of both reaching the poorest and being profitable. The presentation further details:

• Mutual insurance and community-based microinsurance.
• Key issues of concern for community-based schemes:
  • Process of pricing focused on people's opinion rather than being linked to cost structure of expected benefits,
  • Insufficient reserves reduce cash flow deficit managing capability,
  • Weak management and fraud are frequent problems,
  • Limited size restricts diversification making sustainability a challenge,
  • Existence of no proper legal framework for the schemes;
• The products currently available and active participants in the insurance market.

The author discusses the role donors have played in the field of microinsurance:

• KfW has done a series of pre-feasibility studies for microinsurance investment;
• GTZ has actively promoted programs in India and Indonesia;
• FDCF has funded several commercial microinsurance programs in Africa and Asia;
• CIDA, SIDA, UNDP, CORDAID, CGAP, and Munich Re Foundation are all involved in some way with microinsurance;
• The ILO has led the CGAP Working Group on MicroInsurance;
• USAID has funded programs.

Finally, the document concludes with the following reasons for donor interest in microinsurance:

• A variety of new innovations that hold the promise of both reaching the poorest and being profitable;
• Perception of microinsurance as a means of protecting the gains that microfinance clients have;
• The poor needing a full range of financial services, and microinsurance playing a key role in meeting this need.