New Swiss Re sigma study highlights the significance and potential of microinsurance in supporting socio-economic development in emerging markets
Market potential and challenges
While credit life, a mortality cover bundled with microcredit, is the largest selling microinsurance product, there is a strong need for a higher and broader level of protection that can be met with savings/term life, health and agriculture microinsurance.
Some of the challenges that microinsurance faces are: Insufficient infrastructure, the absence of specific regulatory provisions for microinsurance, and the lack of exposure and risk data. Insurers must also find suitable partners for distribution and claims management. Products must be adapted to client needs as well as the cultural background of the prospective microinsurance buyers.
Governments can foster the development of microinsurance through favourable regulations and public private partnerships
The key objectives for governments and policymakers in this regard should be:
1. improving access to financial services for the low-income population;
2. the development of a sound regulatory framework;
3. lowering of barriers and developing efficient markets; and
4. increasing awareness and ensuring consumer protection.
Kalra further said: “Policymakers can deploy multiple approaches to develop the sector, including adopting specific microinsurance regulations, providing financial support and sponsoring insurance schemes targeted to the extremely poor population.”
Governments in partnership with private players can offer effective alternatives
For the extremely poor population or markets which otherwise are not commercially viable, governments through public private partnerships (PPP) can effectively channel subsidies through microinsurance programmes by fully funding or subsidising premiums. Kalra added: ”The governments contribute to developing comprehensive natural disaster solutions and formulate collaborative approaches – such as PPPs – to effectively deal with the financial consequences of large-scale natural disasters on the low-income population.”
Kalra added: ”NGOs, international developmental organisations and donors have played an instrumental role in aiding the development of the microinsurance sector. The contribution of social-minded entrepreneurs in the field of microfinance and microinsurance has also been influential in encouraging private players to participate in the socially-driven businesses and thereby create new market opportunities for the bottom of the pyramid population.”
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