Microinsurance

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Microinsurance provides protection against specific perils to low-income groups. The International Association of Insurance Supervisors (IAIS) defines microinsurance as “insurance that is accessed by the low-income population, provided by a variety of different entities, but run in accordance with generally accepted insurance practices “

Illness or death are the prime concerns for many who take out microinsurance in Africa, though, as with regular insurance, schemes can cover loss of property through fire or theft, damage to crops or natural disasters.

Microinsurance, offers a means to manage some risk and provides some measure of comfort to low-income households, which are often more vulnerable to such crises, but unlikely to have sufficient resources to cope with them. Appropriate cover, simple products, manageable premiums, suitable delivery channels and convenient premium collection methods are key drivers of microinsurance in reducing the vulnerability of low-income earners.

The scale of the market in Africa has attractions for commercial insurers providing life insurance, health-care insurance, and property cover. The small sums insured make for small premiums, however, and schemes need efficiency, cost-effectiveness and sufficient scale to be sustainable.

Microinsurance coverage in Africa has increased massively over the past several years. The 2012 African Microinsurance Landscaping Study (HYPERLINKED) identified 44.4 million lives and properties covered in 39 countries, representing a growth of over 200% between 2008 and 2012. However, despite the increase in coverage, the market is still dominated by life coverage which represents the main driver of overall growth on the African continent with, health, accident and agricultural insurance instruments continuing to play a minor role.

From a regional perspective, Southern and East Africa account for the greatest number of lives and property covered. Compared to 2008, North Africa and West Africa, traditionally the regions with less insured overall, experienced the greatest growth in life and accident products. Recent data suggest that modest growth has been experienced in credit life and health coverage across all regions, implying continued constraints in the sector.

In terms of delivery channels, African mutuals (including community-based organizations) seem to still be the most common delivery channel for microinsurance. One passive channel that has shown great potential is mobile network operators (MNOs). MNOs can indeed help insurers reach consumers in low-premium environments, leveraging on the existence of physical and virtual networks able to reach significant numbers of clients at relatively low cost.

One of the primary obstacles to the uptake of microinsurance remains financial illiteracy. Other challenges include the legal framework that still favors larger companies able to meet minimum capital and surplus assets requirements as well as the lack of adequacy of products offered to the needs of this segment of the population with a high concentration of credit life insurance meant to rather protect the lender should the borrower die.