Social protection

Microinsurance: Much progress, but challenges remain

Globally, an estimated 500 million people have microinsurance, up from 78 million in 2008. Craig Churchill, head of the ILO’s Microinsurance Innovation Facility, discusses the growing value and viability of this insurance mechanism aimed at low-income people.

Comment | 21 March 2014
By Craig Churchill *

GENEVA ‒ For some time now, insurers, regulators and governments have grappled with a multi-billion dollar question: Can microinsurance be a viable business proposition and provide value for its low-income clients at the same time?

Based on extensive research and knowledge gathered over the past five years, we can now say “yes, it can.”

Microinsurance is coming of age. This insurance mechanism for protecting low-income people against risks, such as accident, illness, death in the family or natural disaster, has developed rapidly over the past few years.

Across Asia, the number of people covered by microinsurance grew by 40 per cent between 2010 and 2012, while in Africa, it grew by more than 200 per cent between 2008 and 2012. Overall, the number of people with microinsurance worldwide has increased from an estimated 78 million to more than 500 million in the past five years.

At the same time, an increasing number of governments are viewing microinsurance as an important mechanism to provide not only disaster cover, but financial security, poverty reduction, economic growth and improved access to healthcare for low-income households.

And there has been impressive growth in the variety, availability and delivery of microinsurance products to low-income households. Indeed, from governments to retailers, non-governmental organizations to insurance companies, an increasingly wide range of players are collaborating to build markets for microinsurance.

Technology innovations have been key. Over the past six years, impressive examples have emerged, many pioneered by grantees of the ILO’s Microinsurance Innovation Facility. They include the use of satellite imagery to support livestock insurance in Kenya; establishment of sophisticated back-office systems to provide cashless claims processing for health microinsurance in India; and the use of mobile network operators to sell microinsurance to the ever increasing number of low-income people using mobile phones.

Mobile network operators have been particularly effective in expanding the outreach of insurance in Africa, with many even offering free insurance to entice greater loyalty from their customers. With an estimated 600 million mobile phone users on the continent, the growth opportunities are huge.

New report

The ILO’s Microinsurance Innovation Facility has just published its annual report. The report provides evidence that microinsurance is viable for insurance providers and that it offers value to clients.

Insurers are increasingly seeing that microinsurance can be viable, particularly life and personal accident insurance. In fact, 33 of the world’s 50 largest insurance companies are offering microinsurance, up from seven in 2005. Viability requires three common attributes: acquiring and keeping large numbers of clients; managing claims costs; and completely rethinking traditional insurance processes.

Increasing the number of clients, for example, can be achieved by working with an ever increasing number of partners, such as governments looking to increase health coverage, or mobile phone operators looking for ways to promote client loyalty. The new report provides many other examples.

Research also shows that microinsurance provides value by helping low-income populations cope with losses and enhancing their long-term well being. In Kenya, for example, insured farmers exposed to drought sold fewer assets and had better food intake than those without insurance. In Ghana, insured farmers were able to invest in riskier but more productive farming, because they knew they were covered in case of disaster. In India, people with outpatient health-care insurance spent less time in hospital and less money on health expenses.

Yet despite these successes, delivering on the promise of microinsurance still poses many challenges. In many parts of the world, billions of people still lack basic insurance cover. Many low-income people have never experienced insurance. How do we address this?

The ILO’s Microinsurance Innovation Facility is now embarking on a new journey. From our initial, first five-year phase of innovation, research, knowledge gathering and sharing of experience, we are now shifting gears and undertaking a five-year “Quality of Scale” programme designed to bring this knowledge to those who can best put it into practice. The goal is to get microinsurance to an additional 100 million low-income persons. And we aim to do this by promoting accelerated market development, public-private partnerships and further innovations to increase access to microinsurance.

We believe in the power of microinsurance to change peoples’ lives, protect their health and their assets and give them the financial peace of mind to invest for the future. Over the next five years we will ensure that the promise of microinsurance is realized for millions more people around the globe.

* The author is in charge of the International Labour Organization’s Microinsurance Innovation Facility, established in 2008 with funding primarily by the Bill & Melinda Gates Foundation. This article is based on research and work highlighted in the Facility’s annual report.