MR Microinsurance_2012_03_29.indd - International Labour ...

10 Emerging issues
4. Distribution channel: A fourth approach, sometimes used by insurance companies,
is to define microinsurance by the intermediary involved. For example, if
products are distributed by microfinance institutions (MFIs), low-cost retailers
or other organizations that typically reach the low-income market, then they
could be considered as microinsurance by the insurer.
All of these ways of defining microinsurance have advantages and disadvantages.
Consequently, a mixed approach – looking at the concept of serving the
low-income market, coupled with a quantitative product definition and allowance
for provider and distribution types – may be most appropriate. For example,
Allianz is piloting a microinsurance “stress test” that considers 12 parameters
to assess if an insurance product qualifies as micro, which includes elements of
the target group, product and distribution channel definitions.
Regardless of how one defines microinsurance, product design and access are
key differentiators. The focus on simplicity and accessibility, and the efficiency of
processes, separates microinsurance from traditional insurance. For example,
insurance with a long application form, numerous exclusions, and other requirements
may not qualify as microinsurance, even if the premiums are low and the
product is intended for the low-income market.
Microinsurance should be defined in a manner that responds to the national
or corporate objectives of regulators and insurers respectively, and thus the definitions
will vary. Indeed, the trend is important not simply because the definition
itself is becoming operational, but because insurers and policymakers are
actually interested in putting it into practice in their operations. This indicates
that they are taking this target group more seriously, and possibly creating incentives
or special structures to protect the poor.
There is nothing magical about the term “microinsurance”. Popular insurance
provided through financial cooperatives for many years could be called microinsurance
where the members of those cooperatives are poor. The mass-market
insurance delivered by insurers through affinity groups – such as the members of
unions or the customers of retailers or utility companies – could qualify as well.
Nevertheless, the term “microinsurance” continues to be used because it emphasizes
the importance of understanding the needs, preferences and characteristics
of this target group: the low-income household, the working poor and the
under-served.
In this book, an inclusive definition is used because the primary concern is to
ensure that low-income households can manage important risks more effectively.
A market-based approach is relevant for some target groups, such as the working
poor with small disposable incomes that insurers have not reached in the past,
but it will not effectively reach the poorest of the poor.