The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
Low-income individuals need insurance at least as much as those with higher incomes, due to higher vulnerability and a smaller cushion of resources to draw upon in times of need. The good news is that the number of people covered by microinsurance rose from 78 million in 2007 to 135 million in 2009, and today, more generous estimates place that number at around 500 million.
If microinsurance has grown so rapidly, why worry about it?
First, because most of the market is still unreached. According to Lloyds, the actual market potential is somewhere between 1.5 and 3 billion. Recent growth is disproportionate, with 80 percent of the insured in Asia. Latin America has only 15 percent of the insured and Africa only 5 percent.
Second, because expanding the reach of microinsurance proves to be challenging. The Financial Inclusion 2020 campaign and its partner, the Microinsurance Network, organized a webinar to discuss these challenges with microinsurance experts. From this conversation, three main lessons stuck with me. Microinsurance products must be:
- Simple and tailored to clients’ respective contexts
- Very affordable, even as compared to other financial products for low income consumers
- Innovative to achieve scale
Simple products tailored to client needs
In our webinar, participants repeatedly brought up the importance of developing products with client needs in mind. This is no easy task as low-income clients are exposed to more risks than higher income clients, such as natural disasters, conflict, accidents, and infectious diseases. Most of these risks are not covered by traditional insurance policies. Given the limited resources of most low-income clients, they must access their claims as soon as the need arises, but most insurance companies take too long to disburse funds due to extensive claims processes. ParaLife, a Switzerland-based company that delivers microinsurance to low-income clients and persons with disabilities addresses these issues by covering a wide range of risks, conducting community based risk-assessments, and working with partners to pay claims within 48 hours.
Most of our webinar participants identified high costs as a main reason for the low uptake of microinsurance products. Administrative costs for microinsurance are high, and commercial insurers have little information on the histories of their clients, which results in higher premiums. Some participants suggested connecting pricing to low-cost items clients buy on a regular basis, such as non-essential food items and mobile airtime. Innovative companies are already acting on this need. YuCover, (a mobile insurance product launched in Kenya by YuMobile in partnership with MicroEnsure and Jubilee Insurance), provides life and disability insurance to YuMobile pre-paid consumers. The product is affordable and rewards YuMobile subscribers with a renewable monthly life and disability cover based on the amount of airtime re-charged each month.
Innovation for scale
To make all this work, innovation in distribution, product design, and risk assessment are a must. Partnerships with well trusted brands, whether a mobile provider, a store, or a financial institution will encourage better uptake, as will the use of mobile technology for payments and disbursements. Additionally, innovations in risk assessment for commercial providers can lower administrative costs for managing accounts. An example is the Innovations in Microinsurance project launched in the Philippines by the German Federal Ministry for Economic Cooperation and Development together with the Department of Finance of the Philippines and a local provider of life and property insurance. They developed a climate index insurance product that allows insurance settlement payments to be evaluated for clients as a group and lowers administrative costs for the provider while ensuring quicker post-event response.
How do these challenges for microinsurance tie into CFI’s work on the Financial Inclusion 2020 campaign? We believe full financial inclusion includes widespread access to quality microinsurance products. The project will continue to work with the Microinsurance Network and other insurance providers to integrate microinsurance into each of the five roadmaps to financial inclusion we are developing (Product Range, Financial Capability, Technology, Credit Reporting, and Client Protection). Stay tuned.
Image Credit: IOMBA
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