By Sabrina Régent, Sophie Chauliac and Benoit Rigollet; published by PlaNet Finance and PlaNet Guarantee; 2011; 119 pages; available at:
http://admin.planetfinancegroup.org/upload/medias/fr/pfgroup-market_study_microinsurance_2011.pdf
In this study, the authors argue that access to credit, savings and insurance is a key to fighting poverty as these services allow people to manage financial risks. Most microfinance institutions (MFIs) now recognize that access to credit alone is not sufficient to reduce poverty. Microentrepreneurs often rely on savings as their primary risk management tool, leaving themselves vulnerable to unexpected events such as disease, accidents, death and natural calamities that could threaten their livelihoods. The authors find that neither the insurance market nor local social security systems sufficiently cover the risks of the low-income population in developing countries. While “still an infant compared to microfinance”, the authors state that “microinsurance has huge potential” for assisting low-income people in managing risk.
The Netherlands Development Finance Company (Financierings-Maatschappij voor Ontwikkelingslanden), funded a project that was conducted in 2008 in Argentina, Colombia, Guatemala, Peru, Egypt, Burkina Faso, Mali and Senegal. It was implemented by PlaNet Finance, a French NGO with the mission of alleviating poverty through microfinance development, and its microinsurance affiliate, PlaNet Guarantee. The project was intended to develop various microinsurance products adapted to the needs of low-income people that are unfamiliar with the concept of insurance coverage and risk management strategies.
The methodology included market studies; design and implementation of microinsurance products; and training clients through the design and implementation of games, leaflets and other tools explaining the mechanisms and benefits of insurance products. This study was organized in partnership with several MFIs in each of the six countries (excluding Burkina Faso and Mali). The five phases of the study were: contextual, social and economic study; market survey; study of distribution channels; study of regulatory framework; and analysis, reporting and recommendations.
In addition to finding that savings is usually the main risk management tool used by people with low incomes, the study found that most microentrepreneurs pay an insurance premium with their credit products unknowingly. Consequently, they often do not declare claims for which they are eligible.
The authors argue that education regarding insurance products is needed among both microentrepreneurs and MFI staff. Demand for health insurance products is high in all the countries studied except for Colombia, where most microentrepreneurs are part of the public health system. Life and disability insurance are also in high demand. Among microentrepreneurs in Argentina, Peru and Guatemala, there is unmet demand for funeral insurance, particularly in urban areas, whereas this kind of product is already widespread in Colombia. The top risks faced by microentrepreneurs vary by region with theft being a major problem in Latin America and fire heading the list in Senegal. Climatic hazards such as droughts and floods also affect microentrepreneurs, particularly in Peru, Guatemala and Senegal. In all countries except Senegal, the majority of microentrepreneurs reported that they would be willing to pay for a pension scheme to aid in their retirement. Endowment products with savings components can also be useful by assisting people in paying for religious and social events, which can represent a significant part of microentrepreneurs’ annual spending.
The study finds that the main limitation in serving low-income markets is a lack of information in the following areas: the risks that poor people face and how they cope with them, people’s ability to pay for insurance and insurance demand. The authors suggest that having better data in these areas would allow insurers and reinsurers to be more innovative. Also, insurers are encouraged to work together to promote the still-nascent market. Intermediaries should support clients’ during the claim process, work to increase clients’ understanding of insurance and give them opportunity to be involved with product design.
By far, life insurance is the most developed and distributed product, and property insurance is in high demand. Developing insurance solutions for risks such as health and crop is particularly difficult, and research and development activities likely will require donor funds. For example, donors might have success supporting public-private partnerships to develop innovative mechanisms. There is also potential in supporting projects that aim to transform into insurance the savings that poor people currently use for risk management purposes.
By Ashim Kar, Research Associate
Sources and Additional Resources:
PlaNet Finance and PlaNet Guarantee (2011), “Microinsurance: What Do We Know? Microfinance and Microinsurance: Learnings from Market Studies in Latin America and Africa”, available at, http://admin.planetfinancegroup.org/upload/medias/fr/pfgroup-market_study_microinsurance_2011.pdf
MicroCapital.org story, October 17, 2011, “From Next Billion: David Satterthwaite on “This World Food Day, Making it Africa’s Last Famine”, https://www.microcapital.org/from-next-billion-david-satterthwaite-on-this-world-food-day-making-it-africas-last-famine/
MicroCapital.org story, February 8, 2011, “MICROCAPITAL BRIEF: Liberty Mutual Offers Low-Cost Health Insurance in Colombia, Includes Payment Through Gas Company”, https://www.microcapital.org/microcapital-brief-liberty-mutual-offers-low-cost-health-insurance-in-colombia-includes-payment-through-gas-company-2/
MicroCapital’s Microfinance Universe profile, PlaNet Finance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=PlaNet+Finance
Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/
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