Micro Insurance protects poor people by providing low-cost insurance to mitigate their risk, it is defined by the International Association of Insurance Supervisors (IAIS) as protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved, it provides low premium and often tries to provide a reasonable coverage insurance policy for people with low income, the products of Micro-Insurance are designed with the objective of protecting poor people which are ignored by the traditional insurance products and big insurance companies that tend to focus more on middle to high income individuals and organizations, this creates ways for self-help groups and NGOs in order to act as insurance agents to market the micro insurance products. It facilitates pro-poor financing and social security development, and the mitigation of the effects of climate change and reduces the vulnerability of rural households and mitigate the jeopardy that seems to be a hindrance to their productivity and lives, it also provides assistance in the promotion of investment by securing the lending risk for agricultural investment.
Micro-Insurance and Traditional Insurance share same purpose: to make sure consumers- both individuals and businesses- transfer their risks and have access to needed security to live and expand their business; it is of great significance to divulge that poor households are prone to risks as a result of their low income, education, and their type of business which is often related to agriculture hence when faced with difficulties or when they are victims of disasters or ill-health they are left with little or no solution. Weak financial capability and illiteracy/ ignorance, misinformation, and lack of trust are the few reasons low-income households do not often subscribe to insurance programs, on the other hand, urban-based insurers do not offer products that serve rural low-income markets or products that they can afford, these factors bring a gap between the benefits of insurance and the low-income household, coupled with the fact that poor households or individuals are less educated and are not aware of risk mitigation mechanism.
Micro-Insurers and Health: Studies have demonstrated that insured persons had access to health facilities more often than uninsured persons, furthermore, policymakers spent less on health care for insured persons and in addition, extending health insurance to members of households could reduce child labor
Agriculture and Micro-Insurance: Agriculture is often attributed to be one of the activities of poor households in South countries, poverty reduction is related to the development of agricultural activities, these activities has a lot of risk i.e. health and Natural (climate), micro-insurance could mitigate such risk by providing a platform where households can mitigate such risk or be taken care of in situations of serious health problems, micro-insurance programs can also provide educational training on how to go about activities and provides psychological security to the poor people. Take for example, effective crop insurance allows farmers to specialize in high-value crops, in can be said that having Micro-insurance would make poor people undertake risk ventures which can generate higher income, the certificate of insurance can also be used as a collateral or guarantee to access loans from a Micro-Finance institutions and with the guidance of the MFI and Insurance provider, the poor farmer can strategically increase his income and have more access to the market to sell his produce, furthermore, if the poor farmer falls sick, the Micro-Insurance provider (MIP) covers up the health fees and because of the exposure and level of education of the MIP, the farmer will have access to better quality drugs and healthcare. Farmers face several hindrances that hold them back from investing, however, once there is insurance in place, smallholders will be able to improve their production
Insurable risks hinder many rural communities to prosper. Agricultural Micro-Insurance can stabilize rural communities and promote local development through providing protection or as a necessary condition for larger investments. In the first case, Farming households are prevented from suffering long-term impacts in the case of harvest failure.
According to CGAP Working Group on Micro-Insurance, Good and Bad Practices, Case Study No. 9, in 1997, American International Group (AIG) Uganda entered into an agreement with a microfinance institution (MFI), called FINCA Uganda, to offer insurance products to FINCA’s credit clients. The resulting personal accident product was one of the first success stories where a large insurance company proved that Micro-Insurance could be profitable in a low-income market, Six years after, most Ugandan MFIs were offering it to their clients and 1.6 million lives were covered in three countries. By 2003 the product was contributing 17% of the profits ($100,000) of AIG Uganda.
According to Cai et al (2014), Micro-Insurance might be important as Micro-Finance in increasing production and it can also support the effects of Micro-Finance by protecting the farmers from the inherent risk of entrepreneurial activities. Needless to say, Micro-Insurance providers also create jobs and increase the economic activities of the country.
In conclusion, Micro-Insurance has gone a long way in keeping poor people away from poverty trap and is an important tool for financial inclusion. It is one of the important tools for managing risk by poor and low-income group people. It offers a promising new way for poor people to manage risk and contribute to poverty alleviation and contributes in achieving Millennium Development Goals (MDGs), furthermore, there is a positive relationship between the development of the insurance industry and national economic development, however, the governments in LDCs and developing countries face several challenges such as a low know-how on the modalities of Micro-Insurance and weak institutions, as well as low financial literacy.
Having read this, what policies can you think can be put in place in developing countries to provide Micro-Insurance products and also encourage participants such as NGOs?
NB: Please Follow the below-listed references for more information
Micro Insurance: a Spectacular View on Rural Development in India by Sanjeev Kumar Srivastaw
Presentation by Dr. Brigitte Klein, Financial Systems Development, German Development Cooperation (GTZ) and Federal Ministry for Economic Cooperation and Development (BMZ)
Agriculture, Microinsurance, and Rural Development A thematic paper by Silvia Müller, Gaby Ramm, and Roland Steinmann
The Emergence and Development of Agriculture Microinsurance A Discussion Paper By Thérèse Sandmark, Jean-Christophe Debar, and Clémence Tatin-Jaleran