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Baratha Villas is an NGO Agency appointed by LIC of India
What is MIcro Insurence??
- Microinsurance is insurance with low premiums and low caps / coverage. In this definition, “micro” refers to the small financial transaction that each insurance policy generates. The Microinsurance Regulations, issued in 2005 by the Indian Insurance Regulatory and Development Authority (IRDA), for example, adopted this definition in explaining “microinsurance products”as those within defined (low) minimum and maximum caps. The IRDA’s characterization of microinsurance by the product features is further complemented by their definition for microinsurance agents, those appointed by and acting for an insurer, for distribution of microinsurance products (and only those products).
- Microinsurance is a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved. The author of this definition adds that micro-insurance does not refer to: (i) the size of the risk-carrier (some are small and even informal, others very large companies); (ii) the scope of the risk (the risks themselves are by no means “micro” to the households that experience them); (iii) the delivery channel: it can be delivered through a variety of different channels, including small community-based schemes, credit unions or other types of microfinance institutions, but also by enormous multinational insurance companies, etc.
- Microinsurance is synonymous to community-based financing arrangements, including community health funds, mutual health organizations, rural health insurance, revolving drugs funds, and community involvement in user-fee management. Most community financing schemes have evolved in the context of severe economic constraints, political instability, and lack of good governance. The common feature within all, is the active involvement of the community in revenue collection, pooling, resource allocation and, frequently, service provision.
- Microinsurance is the use of insurance as an economic instrument at the “micro” (i.e. smaller than national) level of society.This definition integrates the above approaches into one comprehensive conceptual framework. It was first published in 1999, pre-dating the other three approaches, and has been noted to be the first recorded use of the term “microinsurance”. Under this definition, decisions in microinsurance are made within each unit, (rather than far away, at the level of governments, companies, NGOs that offer support in operations, etc.).
Insurance functions on the concept of risk pooling, and likewise, regardless of its small unit size and its activities at the level of single communities, so does microinsurance. Microinsurance links multiple small units into larger structures, creating networks that enhance both insurance functions (through broader risk pools) and support structures for improved governance (i.e. training, data banks, research facilities, access to reinsurance etc.). This mechanism is conceived as an autonomous enterprise, independent of permanent external financial lifelines, and its main objective is to pool both risks and resources of whole groups for the purpose of providing financial protection to all members against the financial consequences of mutually determined risks.
The last definition therefore, includes the critical features of the previous three:
- transactions are low-cost (and reflect members’ willingness to pay);
- clients are essentially low-net-worth (but not necessarily uniformly poor);
- communities are involved in the important phases of the process (such as package design and rationing of benefits); and
- the essential role of the network of microinsurance units is to enhance risk management of the members of the entire pool of microinsurance units over and above what each can do when operating as a stand-alone entity.
Microinsurance, like regular insurance, may be offered for a wide variety of risks. These include both health risks (illness, injury, or death) and property risks (damage or loss). A wide variety of microinsurance products exist to address these risks, including crop insurance, livestock/cattle insurance, insurance for theft or fire, health insurance, term life insurance, death insurance, disability insurance, insurance for natural disasters, etc.
Microinsurance has made a significant difference in countries like Mali, Maxime Prud'Homme and Bakary Traoré describe. Innovations in Sikasso Still, many countries face continuing challenges. Specifically in Bangladesh, micro health insurance schemes are having trouble with financial and institutional sustainability, Syed Abdul Hamid and Jinnat Ara describe, but things are improving. Progress in Bangladesh
Microinsurance delivery models
One of the greatest challenge for microinsurance is the actual delivery to clients. Methods and models for doing so vary depending on the organization, institution, and provider involved. As Dubby Mahalanobis states, one must be thorough and careful when making policies, otherwise microinsurance could do more harm than good. Tricky challenges In general, there are four main methods for offering microinsurance the partner-agent model, the provider-driven model, the full-service model, and the community-based model. Each of these models has their own advantages and disadvantages.
- Partner agent model: A partnership is formed between the microinsurance scheme and an agent (insurance company, microfinance institution, donor, etc.), and 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 disadvantaged in their limited control.
- Full service model: The microinsurance scheme is in charge of everything; both the design and delivery of products to the clients, working with external healthcare providers to provide the services. This model has the advantage of offering microinsurance schemes full control, yet the disadvantage of higher risks.
- Provider-driven model: The healthcare provider is the microinsurance scheme, and similar to the full-service model, is responsible for all operations, delivery, design, and service. There is an advantage once more in the amount of control retained, yet disadvantage in the limitations on products and services.
- Community-based/mutual model: The policyholders or clients are in charge, managing and owning the operations, and working with external healthcare providers to offer services. This model is advantageous for its ability to design and market products more easily and effectively, yet is disadvantaged by its small size and scope of operations.
A microinsurance scheme is a scheme that uses, among others, an insurance mechanism whose beneficiaries are (at least in part) people excluded from formal social protection schemes, in particular informal economy workers and their families. The scheme differs from others created to provide legal social protection to formal economy workers. Membership is not compulsory (but can be automatic), and members pay, at least in part, the necessary contributions in order to cover benefits.
The expression "microinsurance scheme" designates either the institution that provides insurance (e.g., a health mutual benefit association) or the set of institutions (in the case of linkages) that provide insurance or the insurance service itself provided by an institution that also handles other activities (e.g., a micro-finance institution).
The use of the mechanism of insurance implies:
- Prepayment and resource-pooling: the regular prepayment of contributions (before the insured risks occur) that are pooled together.
- Risk-sharing: the pooled contributions are used to pay a financial compensation to those who are affected by predetermined risks, and those who are not exposed to these risks do not get their contributions back.
- Guarantee of coverage: a financial compensation for a number of risks, in line with a pre-defined benefits package.
Microinsurance schemes may cover various risks (health, life, etc.); the most frequent microinsurance products are:
- Life microinsurance (and retirement savings plans)
- Health microinsurance (hospitalisation, primary health care, maternity, etc.)
- Disability microinsurance
- Property microinsurance – assets, livestock, housing
- Crop microinsurance
Dirk Reinhard provides a good list summerising reading pertinent to microinsurance. Small means, massive impact
Microinsurance and development
Microinsurance is recognized as a useful tool in economic development. As many low-income people do not have access to adequate risk-management tools, they are vulnerable to fall back into poverty in times of hardship, for example when the breadwinner of the family dies, or when high hospital bills force families to take out loans against high interest rates. Furthermore, microinsurance makes it possible for people to take more risks. When farmers are insured against a bad harvest (resulting from drought), they are a in a better position to grow crops which give high yields in good years, and bad yields in year of drought. Without the insurance however, they will be inclined to do the opposite; since they have to safeguard a minimal level of income for themselves and their families, crops will be grown which are more drought resistant, but which have a much lower yield in good weather conditions.
Microinsurance regulation and supervision
Although microinsurance markets are growing access to insurance services for low-income households at affordable cost and by sustainable providers remains a huge task.
This challenges policymakers, regulators and supervisors to create an environment which facilitates improved growth and outreach of microinsurance markets. While sector authorities such as finance ministries and insurance supervisors have strived to guarantee the soundness of the market and customer protection, proactively pursuing a financial access agenda and integrating low-income households is new to most of them. Regulation and supervision is a key policy tool to fulfil this task as regulatory barriers can prevent insurance companies from serving the low-income market with microinsurance. In some jurisdictions regulators are challenged to integrate informal insures which helps to ensure sound growth and customer protection. However, other policy tools such as macroeconomic, fiscal and legal aspects can be essential complements to these initiatives.
The Access to Insurance Initiative contributes to sound, effective and proportionate policies, regulation and supervision of insurance markets that facilitate growth of insurance for the low income clients.