Micro Insurance

Micro Insurance

II. Development

Microinsurance concept has been developed in recent years, since it first appeared as a new financial service within the microfinance but is now increasingly becoming an autonomous approach. It is developed as a risk transfer instrument typified by low coverage and low premium payments proportionate to the possibility and cost of the associated risk (Microinsurance Network, 2013).

Economic Development

Need for Micro-Insurance

Micro insurance is similar to other insurance that offers a hedge against loss, but micro insurance is different from others only because it is targeted to a specific market i.e. low income population. So, for poor families in developing markets and emerging nations, this type of insurance is a mode to manage the risks associated with accidents, natural catastrophes, and sickness. Approximately 2.6 billion people live on a regular income of between 1.25 and 4.00 US dollars per day. Further, merely 3% can access to province-sector or state insurance schemes, means 97% are very vulnerable in the cases of accidents, sickness, or natural catastrophes (Allianz, 2013). So, this is where microinsurance offers necessary cover for such types of risks, and thereby holds immense importance for its target market.

Political Factors

Today's unstable political factors, in combination with various environmental factors, in the last decade have demanded commercial insurers to explore new ways of doing business with or cater the low income market (Smith et al., 2010). Thus, political instability and environmental factors suggested the insurers to cater low income population of the state.

National Effects

Vulnerability to risk and risk are primary causes of underdevelopment. Insurance is one of the key instruments that can offer a defense against financial and social exclusion of people whose prevailing strategies are failing (Mosley, 2009). So, the increasing risk or vulnerability to risk of the population within the nation and lack of access to formal insurance market resulted in development of micro insurance.

Development in Foreign Countries

Importance

As instability in the countries has been increasing recently, and a large portion of population in developing countries is low-income which cannot access insurance and cover their risks, the importance of micro insurance is greatly emphasized. It can protect low-income population and thereby increase growth and productivity, and promote investment among lower income population while raising overall investment and growth prospects (Mosley, 2009).

a. Target Low or Middle-Income Individuals in Developing Countries:

Microinsurance is specifically targeted to low or middle income population of developing country, which would ...