Microinsurance products offer coverage to low-income households or to individuals who have little savings and is tailored specifically for lower valued assets and compensation for illness, injury, or death.
Breaking Down Microinsurance
As a division of microfinance, microinsurance looks to aid low-income families by offering insurance plans tailored to their needs. Microinsurance is often found in developing countries, where the current insurance markets are inefficient or non-existent. Because the coverage value is lower than the usual insurance plan, the insured people pay considerably smaller premiums.
Microinsurance, like regular insurance, is available for a wide variety of risks. These include both health risks and property risks. Some of these risks include crop insurance, livestock/cattle insurance, insurance for theft or fire, health insurance, term life insurance, death insurance, disability insurance and insurance for natural disasters, etc.
Like traditional insurance, microinsurance functions based on the concept of risk pooling, regardless of its small unit size and its activities at the level of single communities. Microinsurance combines multiple small units into larger structures, creating networks of risk pools that enhance both insurance functions and support structures.
Microinsurance Delivery Methods
Delivery of microinsurance is a challenge. Several methods and models exist, which can differ according to the organization, institution, and provider involved. In general, there are four main methods for delivering microinsurance to a client base: the partner-agent model, the provider-driven model, the full-service model, and the community-based model:
- Partner-agent model: This model is based on a partnership between the microinsurance scheme and an agent. In some cases a third-party healthcare provider. The microinsurance scheme is responsible for the delivery and marketing of products to the clients, while the agent retains all responsibility for design and development. In this model, microinsurance schemes benefit from limited risk but are also limited in their control.
- Full-service model: In this model, the microinsurance scheme is in charge of everything; both the design and delivery of products to the clients, working in conjunction with external healthcare providers. While benefiting from full control, the disadvantage of the full-service model is the higher risks.
- Provider-driven model: In this model, the healthcare provider is the microinsurance scheme, and similar to the full-service model, is responsible for all operations, delivery, design, and service. This disadvantage of this method is the limitations of products and services that can be offered.
- Community-based/mutual model: In this method, policyholders or clients are run everything, working with external healthcare providers to offer services. This model is advantageous for its ability to design and market products more easily and effectively, but the small size and scope of operations limits effectiveness.