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Frequently Asked Questions

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•  What is microinsurance?   
•  Are the providers and risks small in size?   
•  Why do low income people need insurance?   
•  What are the different types of risks faced by low income households?  
•  What are the elements of a microinsurance contract?    
•  What are the different types of institutional models in microinsurance?  
•  What are the challenges that microinsurance providers face?   
•  What are innovative ways to deliver microinsurance products?    
•  Please give us an example of an innovative delivery channel?   

What is microinsurance?
Microinsurance is the protection of low-income people against specific risks in exchange for regular premium payments.

Are the providers and risks small in size?
Microinsurance does not refer to the size of the risk-carrier. Some risk carriers are small and informal, while others are large companies. Microinsurance does not refer to the size of the delivery channel or the scope of the risk. Also, the risks themselves are not “micro” to the households that experience them.

Why do low income people need insurance?
Low income households are more vulnerable to unexpected events or disasters than middle-income or wealthy households. In the absence of insurance, they adopt expensive risk management options like sending children to work, liquidate productive assets, sell their buffer stock, or deplete their savings. This risk exposure results not only in substantial financial losses, but also leaves vulnerable households unable to take advantage of income-generating opportunities, as their assets are used as reserves for coping with risks.

What are the different types of risks faced by low income households?

Type

Examples

LifeCredit, Education, Pension, Funeral, Endowments
DisabilityPermanent, Temporary, Total, Partial, Dismemberment, Debt coverage due to disability
HealthHospitalization, Out-patient, Optical, Sugical, Dental, and specific diseases
PropertyFire, Theft, Agriculture, Flood, Drought, Prices

 

 

 

 

 

 

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What are the elements of a microinsurance contract?
• Policies are for small amounts; largely group policy
• Documentation is simple and easy to understand
• The client pays the premium most likely in installments
• The underwriter may be a private insurance company, a cooperative, a mutual-based association or a community based organization
• A variety of intermediaries (MFIs, public utility companies, retail stores, and telecom companies) distribute the policies

What are the different types of institutional models in microinsurance?
Partnership Model -- Insurance companies underwrite products and deliver them by forming partnerships with MFIs, retail shops, utility companies, religious institutions and others

Community-based model -- Local communities form groups that capitalize and manage a risk pool for their members. The majority of health insurance programs in West Africa adopt community based model.

Co-operative model -- Cooperative insurance is offered by associations operating under hospital, medical, fraternal, employee, trade-union, agriculture producer, or other related auspices. The co-operatives have managers with insurance skills, but are not motivated by profit.

Mutual-based Association Model -- Mutual based associations are directly involved in financial activities such as providing credit or savings facilities, and insurance. These organizations are professionally managed and the interests of its members take priority over profits. Back to top 

What are the challenges that microinsurance providers face?
Microinsurance providers face several challenges like – (i) lack of mortality data of the low income segment (ii) the high cost of distribution, (iii) households’ limited ability to pay premiums and (iv) clients' poor knowledge of the value of insurance. The above challenges clearly highlight that microinsurance has special characteristics in design, delivery, and premium structuring. 

What are innovative ways to deliver microinsurance products? 
Insurers find new channels to deliver microinsurance products to the low income clients and these new channels help reduce the cost of distribution for the providers. Examples of innovative delivery channels include --- post offices, rural retail supermarkets, utility companies, religious institutions etc. Back to top 

Please give us an example of an innovative delivery channel?
Codensa, the largest electric power distribution company in Colombia, has used its base of two million clients to develop appealing microinsurance products with insurance companies. Codensa promotes, sells and services the microinsurance policies and the risk underwriting is done by the Insurance Company -- Seguros Mapfre. Between 2001 and 2008, Seguros Mapfre has insured 300,000 Codensa clients and settled more than 30,000 claims. The policies for low income households include funeral, life, extended warranties (on consumer goods), home insurance, and personal accident insurance. Codensa’s strength is in its well-structured client information system, which captures information on the demographic characteristics of the client, premium payment records and claims data.

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