Microinsurance begins to grow

• ILO gives a boost to efforts in pushing insurance to down market population

The rich and poor are equally faced with political turmoil, health problems, natural disasters and other risks, but it is the poor who suffer more.

Insurers have lately set their sights on the low income bracket, where insurance is needed most.

Known as microinsurance, and characterised by low premium and low coverage limits, products designed to service low-income people and businesses are taking shape in developing countries.

Even the International Labour Organisation (ILO) too is working to deepen uptake of insurance in the down market.

Mr Craig Churchill, head of the Microinsurance Innovation Facility at the ILO and director of the Microinsurance Network, says such cover is intended to protect the working poor.

“Although their risks are anything but micro,” he said, “the term refers to the income or asset level of the target group previously ignored by mainstream insurance schemes for being financially challenged.”

In October 2009, the ILO estimated that in Africa only 14.7 million people had access to microinsurance, 1.35 million of them in Kenya.

Only 2.6 per cent of Africans living on or below two dollars a day have access to insurance products, meaning over 97 per cent of the low income market is without insurance.

“To distribute insurance to low-income people, insurers are using alternative channels and organisations that already have financial transactions with the low-income market, and more importantly have the trust of the market,” says Mr Churchill. They include microfinance institutions, Saccos and religious organisation.

Cooperative Insurance Company (CIC) has partnered with National Hospital Insurance Fund, K-Rep Bank, Faulu Kenya, KADET and others to offer a composite product to rural areas dubbed Bima ya Jamii.

This is a comprehensive insurance package at Sh3,650 per family per year translating to Sh10 per day.

Kenya Orient in 2008 launched ‘Bima Safari’, a Sh30 a day travel insurance bought through the mobile phone. Last week Apollo Life assurance and Microensure launched a life and credit policy for micro-finance borrowers that will cost between Sh200 to 400 per year, about Sh7 per week.

Experts say, though, that it is not just about reduction of premiums that will boost microinsurance.

“One of the most common mistakes insurance companies make when entering the market is to take an existing product and reduce the benefit limits and the premiums without conducting a full review of the products terms and conditions,” says Mr Moses Banda, the country manager of Microensure, a microinsurance intermediary in Africa and Asia.

For example, a life insurance product for a CEO of a big company will show pre-existing illnesses, yet this cannot be applied to a person living in the slums with no medical records.

“Insurance companies have to look at the exclusions and bear in mind the realities of the low income sector,” says Mr Banda.

Severe weather can wipe out a family’s crop and the death of a breadwinner can force children out of school and into the labour market, says Mr Churchil.

“Microinsurance has the potential to help low-income families cope with these and other risks for the cost of an affordable premium. Although this group is indeed ‘financially challenged’ perhaps the question should be how can they afford to effectively manage their risks, through insurance and other means.”

Mobile services

MicroEnsure has specialised in developing low-end insurance products and enhancement of sales channels. Mr Banda says in the last few years penetration of insurance to the poor has been aided by mobile phones companies, acting as the sales points.