MICROCAPITAL STORY: Challenges and Unique Solutions to Providing Microinsurance in West Africa

The products and services of most West African insurance companies target corporate clients and those individuals that are not living in poverty. The infrastructure of most insurance companies is not equipped to provide insurance to the poor. Microinsurance premiums are low, administrative costs are high, and traditional distribution channels are not always effective. Also, because premiums are low, microinsurance is a long term investment from the insurance company’s perspective as opposed to traditional insurance companies which collect larger premiums. All of these factors combined, reports Business Day, a Nigerian business news source, result in scarce microinsurance offerings to West Africa’s poor populations.

Compounding this problem, is the poor and rural population’s lack of knowledge about insurance. Therefore, education becomes an additional component of offering insurance products to the poor. Marketing efforts must be tailored to the target market and policies must be created with clear and concise wording.

In an effort to increase the supploy of microinsurance, Mike Ikupolati, Director General at the West African Insurance Institute, suggests that insurance companies set up by mutuals or cooperative societies are better prepared to serve the low income market. These organizations provide insurance services to their members and sometimes to other non-members. “They provide reduced premiums on policies and allow installment payments of premiums, which are collected more regularly than done under the conventional insurance policies.” Another alternative to traditional insurance product distribution is a model where a traditional insurance company extends services to the poor through small scale loan guarantee policies, credit guarantee policies, retirement policies for the self-employed, and injury coverage.

Josephine Amaoh, Commissioner for Insurance in Ghana, has observed that insurance products have better penetration of the low income market when they are offered through alternative distribution channels such as microfinance institutions, community organizations, retailers, churches, and cell phone companies. Last month, MicroCapital reported that Vikram Akula, Founder of Indian MFI SKS Microfinance, decided to step down as CEO in order to devote his attention to microinsurance.

By Iyanna Holmes, Research Assistant

Additional Resources:

AllAfrica.com: West Africa: How to Make Micro-Insurance Work in the Region

Business Day: Developing Micro-Insurance Through Co-Operative Societies

MICROCAPITAL STORY: November 17, 2008, Vikram Akula to Step Down as CEO of SKS Microfinance

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