The International World Business Council for Sustainable Development estimates that more than 85% of the world’s population will live in developing countries by 2050.These countries include more than 4,000 million people who, although they have an annual income of less than 3,000 dollars, are willing to allocate part of their income to meet their needs in terms of food, access to water and sanitation, energy, etc. This population represents a huge neglected market and leads us to question whether it is possible to develop adapted products and services that respond in a sustainable way to the needs of the most vulnerable.
The answer to this question lies in inclusive business. And within this type of business, is microinsurance, a business less known than the pioneering microfinance industry, but with enormous potential.
What is microinsurance?
Of the 4 billion people that make up the base of the pyramid, only 10 million have access to microinsurance. According to data from Lloyd’s Risk Insight, this is a potential market of between 1,500 and 3,000 million policies. Microinsurance can be defined, in a simplified way, as insurance tailored to low-income populations in developing economies. This type of insurance emerged in the nineties when the International Labor Organization (ILO) began to place low-cost policies, for the client, to financially include the low-income population in the world of insurance.
Microinsurance is the gateway for many sectors of the population to the world of protection, but especially for low-income segments it is a simple and affordable way to protect themselves.
But what kinds of risks does microinsurance cover? Currently this type of insurance mainly covers medical emergencies or deaths, but they are beginning to cover a greater range of unforeseen events. Thus, among the main coverage they offer are funeral expenses, the liquidation of a credit balance or help for specific conditions, for example cancer. Among the most common microinsurance are: life and loan insurance; temporary life or accident insurance; life and savings insurance; health insurance (probably the most demanded by households); property insurance; and agricultural insurance, which is especially important for the most vulnerable farmers.
Despite the potential of microinsurance, it still represents a limited market in the global insurance landscape. For example, in 2013 in Latin America, they represented only 0.5% of the policies contracted. In the case of Africa, despite a 63% growth between 2011 and 2014, there is 1.2% microinsurance of all policies.
Why is microinsurance important in the fight against poverty?
Being poor means being vulnerable at the same time. The poor are most exposed to risk: illness, death, accident, etc. it can exacerbate your poverty level in extreme ways. In the absence of protection mechanisms, they must turn to friends, moneylenders, to sell their limited assets, their livestock, their work equipment; which makes it even more difficult for them to get out of poverty.
Microinsurance, with installments adapted to their ability to pay, allows people living in poverty to see their vulnerability reduced and, therefore, they are less likely to worsen their situation in the face of adverse events.
A practical example: 3 × 1 microinsurance
From Banco ADOPEM and CODESPA we decided to develop microinsurance for remittance recipients in the southern part of the Dominican Republic. They are low-income families that, for the most part, carry out some activity in the micro-entrepreneurial sector, within the scope of the informal economy.
We wanted it to be a complete, agile, easy and accessible product; Essential conditions for this market niche, which ensure the impact on the improvement of their quality of life and the fight against poverty, at the same time that they contribute to achieving a high acceptance of the product. Among the actors involved in the project, we were able to design a very attractive product for the client with which, with an investment of a minimum part of the remittance or cash, the quality of life of the client, his family and provide you with high benefits and peace of mind. The 3 × 1 Microinsurance product is a life, accident and last expense microinsurance and a loan for business creation. Priced at only4 euros per year provided coverage of almost 1,000 euros, significantly reducing the vulnerability faced by poor people in the Dominican Republic. All types of clients between the ages of 18 and 66 and a maximum age of 75 years.
Currently local insurers provide the insurance service, selling 2,000 policies per month.