Last week, I introduced the idea of how insurers are succeeding at microinsurance in emerging markets. I’d like to take one step back and highlight some of the main differences between traditional insurance products and microinsurance.
Types of microinsurance
Microinsurance encompasses health insurance, life protection, agricultural or property insurance, job loss insurance and catastrophe insurance. There’s no single definition of microinsurance. For example, in South Africa, it’s defined as providing “a maximum benefit of R50,000 (US$6,400) per insured life, per insurer for an insurance related to a death event” while in the Philippines, it’s “the amount of premium [that] does not exceed 10 percent of the current daily minimum wage rate for non-agricultural workers.”
Microinsurance has been most successful in Asia Pacific, notably India, Bangladesh, China and the Philippines. In South America, Brazil, Mexico, Colombia and Peru are flourishing markets. Africa and Eastern Europe are potential—and mostly untapped—markets.
Microinsurance vs. traditional insurance
As you might expect, the premium and insured amount for microinsurance is smaller than for conventional insurance. But there are other points to consider. Microinsurance:
- Presumes low awareness of insurance as a concept.
- Assumes that customers are poorly educated, or even illiterate, so communications must be straightforward.
- Is executed as conveniently and simply as possible, including eligibility requirements, exclusions, payments and claims processes.
- Relies on group pricing, due to the lack of personal data available.
- Links premiums to other payments, such as loan repayments.
Profitability of microinsurance—and more
Research from the Microinsurance Network focused on 24 carriers that are in the microinsurance space, and found that 57 percent believe that the business is profitable. And, all but one were convinced that they would achieve profitability within three years.
So now that we’re all on the microinsurance bandwagon, what are the best ways to approach this new product and new markets? Tune in next week as I talk about business models for an effective microinsurance strategy.
To learn more, download Succeeding at Microinsurance through Differentiation, Innovation and Partnership (pdf; opens in a new window).