Guardian: Can microinsurance protect the poor?
Low-cost insurance that covers the lives, health and property of the poor could provide protection against natural disasters.
... Microinsurance, low-cost insurance policies that cover the lives, health, crops and property of the most vulnerable, are being seen as a central way of providing social protection to the increasing numbers of people affected by natural disasters such as hurricanes, flooding and drought.
A recent report by the German insurance giant Munich Re calculated that 2010 was the second worst year for disasters since 1980. It reported that 950 global catastrophes had amounted to overall losses of around $130bn. Of this, only around $37bn was insured. For example, only 1% of the $14bn of property damage caused by Haiti's massive earthquake was covered by insurance.
At the Bonn climate change talks in 2008, microinsurance was touted as a central component of climate change adaptation measures in Africa, Asia and Latin America. ...
... Yet despite the buzz surrounding microinsurance, the industry's reach is still limited. The 150 million people currently holding policies represent only a small fraction (around 5%) of a potential market of up to 3 billion.
Unlike microfinance programmes that provide people with instant cash, the insurance industry has so far struggled to overcome the simple problem of trying to ask poor people to pay for something they might never use.
Richard Leftley, the chief executive of UK-based MicroEnsure, one of the leading microinsurance companies, says that it has all but scraped the idea of trying to sell policies direct. He says turning up in towns and villages and asking poor families to buy insurance simply doesn't work. "Trying to explain to someone with no prior experience of insurance that if you pay even just a little bit every month then someone will pay you back if your crops failed or your child is hospitalised is often met with a perfectly understandable 'yeah right' response," he says.
Instead, the industry is evolving, with many policies now being sold as add-ons to products and brands that people already use and trust. For example, MicroEnsure says it is now conducting most of its business in Africa through partnerships with mobile phone companies.
Phone companies trying to get people to stop using multiple sim cards and stay loyal to one air-time provider are offering life or health and disaster insurance as an incentive. People who buy credit for one month get a month's worth of insurance at no extra cost. ...