Microinsurance: Finding a Place at the Table

March 18, 2011

The base of the economic pyramid is huge and growing.

By most estimates there are 4 Billion people, worldwide, who are living on the equivalent of $8 a day, or about $3,000 a year; about half of those individuals get by on less than $2 a day.

Of course, it's not as though these individuals work each day and bring home $8 or $2; rather their incomes wax and wane with the vagaries of life. These folks also represent a broad cross section of society in terms of geography, occupation, financial situations and needs. Yet, there's a commonality in that these individuals tend to be the most susceptible to national disasters, illnesses and the like.

Translation: there's a dire need for microinsurance among those who seem least likely to be able to afford such products.

The international insurer Allianz Group, in a 2010 report - Learning to Insure the Poor - estimated that half the population of the world are potential candidates for microinsurance. Yet, just 78 million people in the world's 100 poorest countries have some type of microinsurance. (You can learn more about that report on the Alliance Web site.)

Microinsurance can protect against a wide cross-section of disaster situations, and has become an especially important consideration in the face of global warming.

Regions of Africa, Asia and the Asian Subcontinent, already devastated by flooding and droughts, that are home to billions of poor people are likely to see even more devastation from extreme weather events, according to the Global Risk Forum (GRF) a think tank based in Davos, Switzerland.

The result has been more attention to microinsurance products.

In Africa, alone, microinsurance policies rose 80% between 2005 and 2009, GRF noted in a recent report, Microinsurance - An Innovative Tool for Risk and Disaster Management. And in India, more than 1 million individuals are now covered by microinsurance policies. The most common types are health and whole life, often in combination with microcredit.

Here's the bottom line on insuring the poor, from the GRF report:

"People on low incomes are perfectly willing to pay for a good product. However, if a program is to succeed, it needs to satisfy three conditions: people must (1) be able to pay the premium, (2) be willing to purchase cover and (3) conclude a contract of insurance. Other factors to be born in mind are not only the annual premium in absolute figures, but also the fact that poor people cannot necessarily make regular payments or may only be able to afford small installments."  Click here to learn more at the GRF Web site.

Farmers in Kenya

Meanwhile, an innovative crop insurance program in Kenya that uses mobile telephones to collect payments from farmers and solar-powered weather stations to monitor conditions and guarantee rapid payouts, is being expanded to cover more potential losses.

Kilimo Salama (translates as Safe Agriculture), is a pay-as-you-plant insurance program to protect against washed out crops that's been used by about 12,000 farmers since being launched a year ago, according to government sources. The program is a partnership of the Syngenta Foundation for Sustainable Agriculture, USP Insurance and the the telecomm carrier Safaricom. (Read a previous post about the program here.)

Kilimo Salama Plus expands on that original program by allowing farmers to insure the value of their harvests. It also makes possible insurance policies for a wider variety of crops, like maize, wheat, beans and sorghum.

Farmers purchase policies through local agro-dealers, who in turn use a scanner, mobile telephone and the Safaricom network to submit insurance applications and issue text messatge confirmations. Payouts are determined by data collected via the solar weather stations and sent to farmers via the M-PESA mobile payments network.

There are nearly four times as many individual bank loans to adults in the developed world as there are in developing countries (0.82 vs. 0.22)

_-CGAP