Journal Edge

Microinsurance is insurance that covers specific risks like crops and livestock, life insurance, and health insurance. Customers specify what they would like to have covered and avoid paying for coverage that doesn’t apply to them.

Microinsurance seeks to aid impoverished families around the globe that are unable to afford traditional, broad-scope insurance plans.

Countries That Have Excelled With Microinsurance

Microinsurance is popular in many third-world countries. In 1997, American International Group was one of the first insurers to begin offering microinsurance in Uganda. Other more developed nations have started employing microinsurance in rural areas.

Brazil, India, South Africa, and China have employed successful microinsurance programs. In rural parts of China, the Chinese government saw impressive results with a four-year trial program that ran from 2012 to 2016.

Following Typhoon Haiyan, the residents of the Philippines were compensated for over $1.9 million in damage thanks to microinsurance programs.

Two of the most widely used types of microinsurance are credit-life insurance and funeral/burial insurance. Microinsurance plans are available for disability, property damage from natural disasters, theft, and fire.

How Microinsurance Works Like A Charm

Microinsurance works just like traditional insurance but on a smaller scale. It functions on the concept of risk pooling. The difference is that it operates on a smaller unit size at the level of single communities. The smaller units combine into larger structures to build bargaining power.

There are four primary methods for delivering microinsurance: the full-service model, the partner-agent model, the community-based model, and the provider-driven model.

The Fantastic Four Microinsurance Models

In the full-service model, the microinsurance scheme takes care of everything. They coordinate healthcare providers and design and deliver products to clients. The provider-driven model is the same as the full-service model, except that the healthcare provider serves as both the microinsurance scheme and the service provider.

In the partner-agent model, an agent serves as a go-between connecting the client to a third-party healthcare provider. In the community-driven model, the community runs everything, but the system is more prone to inefficiency and errors.

Not all programs have been effective. Microinsurance schemes in Bangladesh have been prone to corruption. But, cases like these seem to be outliers. Microinsurance is on the rise and seems to hold a place in the evolution of insurance across the globe.