The number of microinsurance schemes worldwide has increased substantially over the past five years and now reaches an estimated 500 million worldwide, according to the Microinsurance Innovation Facility of the International Labour Organization and the Munich Re Foundation.
Microinsurance aims to protect poor people against risks – such as accidents, illnesses, death in the family, natural disasters and property losses – in exchange for insurance premium payments tailored to their preferences and capacity to pay.
The second volume of the “Microinsurance Compendium, Protecting the poor” just published by the two organisations says the number of people covered by microinsurance rose from 78 million in 2007 to 135 million in 2009, reaching nearly 500 million today.
“Since 2008, we have seen numerous innovations emerging to overcome the challenges of providing viable insurance services to more low-income people,” says Craig Churchill, Team Leader of the ILO’s Microinsurance Innovation Facility and Chair of the Microinsurance Network, which is a global multi-stakeholder platform that aims to pomote the development and delivery of effective insurance services for low-income people.
“Efforts now should focus on increasing effectiveness so that insurance products can successfully reduce their vulnerability. The Compendium comes at the right time to help insurers, delivery channels, donors and other stakeholders understand what it means to provide valuable risk-management services to the working poor,” Churchill adds.
The results show that Asia – with its two microinsurance powerhouses: China and India – is spearheading the trend, covering roughly 80 per cent of the market. It is estimated that 60 percent of people around the world who are covered by microinsurance live in India. Latin America accounts for 15 percent of the market and Africa 5 percent.
According to Munich Re and the ILO, there are many reasons why Asia is ahead of the game; large and dense populations, interest from public and private insurers, proper distribution channels and active government support, are some examples, the report says.
“Indeed, what the developed world took several hundred years to accomplish cannot be replicated within a decade in the developing world, even given all the new technology and knowledge that is now available. Providing microinsurance effectively requires the involvement of many stakeholders from both the public and private sector who are not used to working together and who often have very different objectives and operating systems. What matters now is the process of getting key stakeholders to work together effectively”, says Dirk Reinhard, Vice Chairman of the Munich Re Foundation.
According to the Compendium, there have been many innovations in the field of microinsurance over the past years. For example, new products covering a variety of risks have been piloted and distributed to poor households through an increasing diversity of channels (e.g., banks, retailers or cell phone companies). Commercial insurers have also entered the low-income market, creating significant capacity for scale. At least 33 of the 50 largest commercial insurance companies in the world now offer microinsurance, up from only seven in 2005.
The Microinsurance Compendium Volume II covers in 26 chapters a wide range of topics from sector trends, contribution of microinsurance to social protection and resilience building, health, life and agriculture insurance and their distribution to the business case and client value of microinsurance.
Microinsurance is unlikely to break the cycle of poverty by itself, but it is a valuable tool in the poverty alleviation toolkit. When coupled with social protection, risk prevention and mitigation, and supplemented by other risk-managing financial services such as savings and emergency loans, microinsurance can play a critical role at multiple levels to efficiently manage risks, reduce vulnerability and contribute to poverty alleviation.