Microinsurance in Africa | KPMG | ZA

Microinsurance in Africa

Microinsurance in Africa

Microinsurance refers to insurance products that offer coverage to low-income households. A microinsurance plan provides protection to individuals who have little savings and is tailored specifically for lower valued assets and compensation for illness, injury or death.

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microinsurance

Microinsurance refers to insurance products that offer coverage to low-income households. A microinsurance plan provides protection to individuals who have little savings and is tailored specifically for lower valued assets and compensation for illness, injury or death. This is insurance which is accessed by low-income earners, provided by a variety of different entities, but managed in accordance with generally accepted insurance practices.

It is prevalent in developing countries where the insurance market is non-existent or inefficient. This focus on the low income market gives rise to distinct means of distributions and unique products.

The most common features of microinsurance include:

  • As with conventional insurance, it applies the principles of risk pooling
  • Targets the low income, informal sector
  • Is independent of the class of risk

 

There are three approaches to understanding the term micro in microinsurance.  The first focuses on the target group, the second on the product and the third on the processes.

The target group approach: micro is defined by the target market, specifically the low income population. Poorer communities are typically excluded from the formal financial services market because they cannot afford the premiums or do not have access to these benefits through their employment. Therefore, microinsurance provides access to the formal insurance market by creating unique products and distribution systems to address their needs.

The product approach: micro is defined by the characteristics of the products offered, being smaller coverage and proportionally smaller benefits. Conventional insurance is unsuitable to the lower income groups because the premiums are unaffordable and the coverage is possibly excessive (generally own fewer assets).

The processes approach: micro relates to the process of designing, introducing, and administering the schemes, and the schemes are governed directly to some degree by the insured members.

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