Separated at Birth
Brokers are missing out on the
beginning of micro-insurance products. Are you missing out on
The tsunami that hit the coast of Southeast Asia in 2004 was
one of the deadliest natural disasters in history. Hundreds of
thousands of lives were lost in 11 countries, and two million
people were left homeless. Those hit hardest by the disaster
were poor—without insurance or other resources to rebuild
their homes or their lives.
The United Nations estimated rebuilding the areas devastated
by the tsunami would cost $10 billion to $12 billion or up to
10 times the amount spent on emergency aid. The poor are more
vulnerable to the risks of the world and the least able to cope
when disaster hits. The vast populations in developing
countries subsist on pennies a day with little savings left
over for bad times. When natural disaster strikes, the money to
rebuild and put people’s lives back together comes from a
combination of government largesse, aid from religious
organizations, humanitarian efforts and community support.
Insurance is one way to help the poor protect themselves.
Unfortunately, traditional insurance has been scarce and
Many governments and community-based organizations are
turning to micro-insurance as part of the solution.
Micro-insurance is fast becoming the next generation of
financial products provided to the poor in emerging economies.
Throughout Asia, Africa and Latin America, micro-insurance
programs are being developed to help the neediest protect
themselves against loss.
Micro-insurance can play a key role in protecting low-income
people from the effects of illness, property loss and financial
disaster. It also helps shift some of the costs from government
to the private sector where risk can be managed. The question
is how to regulate micro-insurance to create incentives to
serve this market while protecting the most vulnerable in
Before we tackle that issue, what is micro-insurance and how
does it operate?
Simply put, micro-insurance is a low-cost insurance product,
often with low caps and coverage limits, aimed at low-income
people and businesses not served by the private insurance
market or government social programs. The most typical products
are life, savings plans, health, disability, property and crop,
but micro-insurance can include other lines. Policies are
usually sold under group coverage plans and can include
thousands of individuals.
There are a number of models for micro-insurance, but in
principle micro-insurance works like any insurance business. It
is typically part of a risk-pooling arrangement. The models for
micro-insurance can include public/private partnerships,
mutuals and government-sponsored programs. Most micro-insurance
is delivered by an intermediary organization, such as a bank or
Until recently, few private insurers ventured into
micro-insurance. A sustainable business model wasn’t
there. Premiums are minimal, profit margins are slim to none
and efficient distribution is a challenge.
But that’s starting to change. For example, Allianz
has partnered with CARE, an international aid agency, to
provide comprehensive health insurance in India to the poor.
They expect to have up to 200,000 customers aged 18 to 70
within a year.
Why are insurers beginning to see opportunities? In rapidly
developing countries, particularly those with huge populations
such as India and China, today’s low-income family and
business are tomorrow’s middle-class and entrepreneur.
Insurers are now recognizing the importance of branding their
products in the public’s mind early on.
Intermediaries have a stake in the game as well. Although
micro-insurance depends on an intermediary to get the products
to the consumer, the intermediary is usually not an agent or
broker. Rather, distribution is provided by non-government
organizations, banks, post offices and other efficient,
community-based conduits. If agents and brokers don’t
find a way to participate in this emerging market, they may
find themselves cut out as the market develops.