Microinsurance
From Wikipedia, the free encyclopedia
Micro-insurance is a term increasingly used to refer to insurance characterized by low premium and low caps or low coverage limits, sold as part of atypical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes.
The institutions or set of institutions implementing micro-insurance are commonly referred to as a microinsurance scheme.
Contents |
[edit] Definitions of micro-insurance
- Micro-insurance is insurance with low premiums and low caps / coverage. In this definition, “micro” refers to the small financial transaction that each insurance policy generates. The Micro-insurance Regulations, issued in 2005 by the Indian Insurance Regulatory and Development Authority (IRDA), for example, adopted this definition in explaining “micro-insurance products”[1] as those within defined (low) minimum and maximum caps. The IRDA’s characterization of micro-insurance by the product features is further complemented by their definition for micro-insurance agents, those appointed by and acting for an insurer, for distribution of micro-insurance products (and only those products).
- Micro-insurance is a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved.[2] The author of this definition adds that micro-insurance does not refer to: (i) the size of the risk-carrier (some are small and even informal, others very large companies); (ii) the scope of the risk (the risks themselves are by no means “micro” to the households that experience them); (iii) the delivery channel: it can be delivered through a variety of different channels, including small community-based schemes, credit unions or other types of microfinance institutions, but also by enormous multinational insurance companies, etc.
- Micro-insurance is synonymous to community-based financing arrangements,[3] including community health funds, mutual health organizations, rural health insurance, revolving drugs funds, and community involvement in user-fee management. Most community financing schemes have evolved in the context of severe economic constraints, political instability, and lack of good governance. The common feature within all, is the active involvement of the community in revenue collection, pooling, resource allocation and, frequently, service provision.
- Micro-insurance is the use of insurance as an economic instrument at the “micro” (i.e. smaller than national) level of society. [4] This definition integrates the above approaches into one comprehensive conceptual framework. It was first published in 1999, pre-dating the other three approaches, and has been noted to be the first recorded use of the term “micro-insurance”.[3] Under this definition, decisions in micro-insurance are made within each unit, (rather than far away, at the level of governments, companies, NGOs that offer support in operations, etc.).
Insurance functions on the concept of risk pooling, and likewise, regardless of its small unit size and its activities at the level of single communities, so does micro-insurance. Micro-insurance links multiple small units into larger structures, creating networks that enhance both insurance functions (through broader risk pools) and support structures for improved governance (i.e. training, data banks, research facilities, access to reinsurance etc.). This mechanism is conceived as an autonomous enterprise, independent of permanent external financial lifelines, and its main objective is to pool both risks and resources of whole groups for the purpose of providing financial protection to all members against the financial consequences of mutually determined risks.
The last definition therefore, includes the critical features of the previous three:
- transactions are low-cost (and reflect members’ willingness to pay);
- clients are essentially low-net-worth (but not necessarily uniformly poor);
- communities are involved in the important phases of the process (such as package design and rationing of benefits); and
- the essential role of the network of microinsurance units is to enhance risk management of the members of the entire pool of microinsurance units over and above what each can do when operating as a stand-alone entity.
[edit] Micro-insurance products
Micro-insurance, like regular insurance, may be offered for a wide variety of risks. These include both health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of micro-insurance products exist to address these risks, including crop insurance, livestock/cattle insurance, insurance for theft or fire, health insurance, term life insurance, death insurance, disability insurance, insurance for natural disasters, etc.
[edit] Micro-insurance delivery models
One of the greatest challenge for micro-insurance is the actual delivery to clients. Methods and models for doing so vary depending on the organization, institution, and provider involved. In general, there are four main methods for offering micro-insurance[2] the partner-agent model, the provider-driven model, the full-service model, and the community-based model. Each of these models has their own advantages and disadvantages.
- Partner agent model: A partnership is formed between the micro-insurance scheme and an agent (insurance company, microfinance institution, donor, etc.), and in some cases a third-party healthcare provider. The micro-insurance scheme is responsible for the delivery and marketing of products to the clients, while the agent retains all responsibility for design and development. In this model, micro-insurance schemes benefit from limited risk, but are also disadvantaged in their limited control.
- Full service model: The micro-insurance scheme is in charge of everything; both the design and delivery of products to the clients, working with external healthcare providers to provide the services. This model has the advantage of offering micro-insurance schemes full control, yet the disadvantage of higher risks.
- Provider-driven model: The healthcare provider is the micro-insurance scheme, and similar to the full-service model, is responsible for all operations, delivery, design, and service. There is an advantage once more in the amount of control retained, yet disadvantage in the limitations on products and services.
- Community-based/mutual model: The policyholders or clients are in charge, managing and owning the operations, and working with external healthcare providers to offer services. This model is advantageous for its ability to design and market products more easily and effectively, yet is disadvantaged by its small size and scope of operations.
[edit] See also
[edit] References
- ^ “General micro-insurance product means health insurance contract, any contract covering the belongings, such as, hut, livestock or tools or instruments or any personal accident contract, either on individual or group basis, as per terms stated in Schedule-I appended to these regulations”; and “life micro-insurance product” means any term insurance contract with or without return of premium, any endowment insurance contract or health insurance contract, with or without an accident benefit rider, either on individual or group basis, as per terms stated in Schedule-II appended to these regulations.
- ^ a b Churchill C. (ed.) (2006). Protecting the Poor: A Microinsurance Compendium. Geneva: ILO.
- ^ a b Alexander S. Preker, Guy Carrin, David Dror, Melitta Jakab, William Hsiao, Dyna Arhin-Tenkorang (2002). "Effectiveness of community health financing in meeting the cost of illness". Bulletin of the World Health Organisation 80 (2): 143–150. Geneva: WHO.
- ^ Dror, D, Jacquier Ch (1999). "Micro-insurance: Extending Health Insurance to the Excluded". International Social Security Review 52 (1): 71–97. Geneva: ISSA. doi:.
[edit] External links
Microfinance at the Open Directory Project
For technical information and resources on microinsurance see Global Information on Microinsurance of the International Labour Office in English and French.
