The risks faced by low income people are the same as those faced by the rich people. However, these risks have greater financial impact and occur with greater frequency among the low income people. The vulnerability of low income people is exacerbated each time they incur a loss. Key risks include; death, illness or injury, loss of property (through fire or theft), natural disaster (earthquake, drought). Recurrent climate hazards challenge farmers in developing countries. Reliance on various diversification and traditional risk sharing among kin and families has had serious limitations; low income households are vulnerable to risks and economic shocks. One way for the low income people to protect themselves is through insurance.
Microinsurance is the protection of low income people against specific perils in exchange for regular premium payment proportionate to the likelihood and cost of the risks involved. It is the use of insurance as an economic instrument at the micro level of the society to enable the poor to maintain a sense of financial confidence even in significant vulnerability and to manage risks. Microinsurance is growing and expanding throughout Africa although parts of the continent remain barren of microinsurance. Microinsurance has been available to low income people in the society for a while now, risk management schemes and informal insurance are not entirely new even in the most inaccessible places; however these schemes and methods are usually limited in their outreach or cover only a small portion of the risk.
Microinsurance covers health, agriculture, death, property among other things. An ILO study from October 2009 entitled “The landscape of microinsurance in Africa” indicates that 14.7 million people or about 2.6% of the population living under $2 per day in 32 countries are covered by microinsurance products in Africa, with life insurance being the most popular (9.5% of the estimated market). This is still a small number compared to that in developed countries and with this in mind the vital aspect is to explore ways of significantly increasing the number of poor household that have access to microinsurance.
Different Models and Delivery Structures
- Partnership between insurers and distributing agents such as cooperatives and microfinance institutions (MFIs).
- Commercial and cooperative insurers, insurance companies, that are regulated by insurance regulations and serve low market directly.
- Healthcare providers offering a financial package and absorbing insurance risk.
- Community based micro insurance programs that pool funds, carry risks and manage a relationship with health care providers.
- Microfinance institutions, NGOs, Hospitals and other insurance programs not regulated. These assume the risk of offering insurance to their clients.
- Government sponsored or subsidized insurance schemes.
In Kenya and most parts of Africa, agriculture insurance is important due to the unpredictable weather patterns. This has brought about programmes to help minimise the losses. In Kenya for example, a new program called Kilimo Salama Plus (Safe farming) compensates farmers for investment in seeds, fertilizers and other inputs lost due to insufficient or excessive rains. Kilimo Salama – an initiative of UAP insurance, Syengenta Foundation and mobile operator Safaricom – goes an extra mile to give farmers an opportunity to insure the value of their harvest. This programme is available to farmers in the productive regions of Kenya, including Eldoret, Kitale, Embu, North Rift etc.
Challenges Faced by Microinsurance Providers
- How to reduce administrative cost for all the parties involved.
- Creation of awareness – This is usually time consuming and costly as most low income people do not understand insurance or even are biased against it. Many are sceptical about paying premiums for possible future benefits hence it is hard to convince them.
- Capacity building among stakeholders – This is to enable development, sell and manage better products.
- Delivery Channels – How to enhance effectiveness and curb risks in terms of improving providers’ familiarity with the preferences and behaviour of the low-income clients.
Do MYC4 Partners Offer Microinsurance Cover?
Most of MYC4’s partners offer microinsurance to their borrowers so that the loss is minimised. Tujijenge Tanzania Limited for example has a cover for their borrowers in case the client dies, has a permanent disability or directly encounters a catastrophic event, while SISDO covers their clients in case of death, fire and natural calamities.
Below is an example of insurance information on one the loan products on the MYC4 platform:
Without microinsurance, low income people mostly deplete their savings, sell productive assets, default on loans, reduce spending on food and schooling, etc.
If governments, donors, microfinance institutions and development agencies across Africa are serious about eradicating poverty, then should microinsurance be one of the tools in their programs?