By Manish Shah
While micro finance is hailed as a vehicle for the world’s poor to climb out of poverty, micro-insurance is expected to help them from falling back into poverty. The International Labor Organization (ILO) and Bill and Melinda Gates Foundation are rolling out a micro-insurance product in Bangladesh to people who live on less than $2 a day. The premiums for the micro- insurance are low and the insurance covers life, healthcare, weather, property, agriculture, livestock and major disasters.
Generally, insurance companies do not provide coverage for less than 10 years. However, given the financial constraints of the target market, the coverage is designed to last for three to five years. Policyholders will receive a refund of life premiums in addition to the 5 percent of their investment income if their policy is free of claims during the coverage. If there is no claim on hospitalization coverage, the price of subsequent premiums would be reduced by 10 percent each year based on the prior years’ record.
Micro-insurance has met with limited success so far. This can be attributed to several factors. The policy holders need to pay premiums upfront and then trust the providers to make payments later. However, for people, who have never been exposed to insurance, this is a huge leap of faith. Also, the micro-insurance industry has been inflexible in tailoring its product to the local markets. For example, in a particular market insuring the home from flood could be a lower priority than insuring a flock of sheep. Therefore, the micro- insurance product in this market needs to reflect these priorities. Another hurdle is access to micro-insurance. Micro-insurance providers have just started to use innovative distribution channels to make micro-insurance accessible to the masses. New Delhi-based Max India Ltd., and New York Life Insurance are offering a product which is called Max Vijay through I-SERV, a national retail chain. They are using I-SERV’s 12,500 stores to gain access to a large customer base. According to Micro-insurance Center in the US, the number of people using micro-insurance has jumped from 80 million to 135 million in the last three years. These numbers indicate that hundreds of millions of world’s poor are still not covered by micro-insurance. To take advantage of this untapped market, leading commercial insurers such as Prudential and Allianz are planning to introduce micro insurance products. This may be a sign that better days are ahead for micro-insurance.