Microinsurance

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What is Microinsurance?

Microinsurance is a type of insurance with low premium and low limit coverage targeted to low-income people.

The term Microinsurance is an extension of the concept of Microfinance into insurance services. An appropriate definition comes from C. Churchill in his 2006 book Protecting the Poor: A Microinsurance Compendium. The author defined micro-insurance as:

“a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved”.

This definition doesn’t mention the size of the company providing this service, it could be a Microfinance Channel or an Insurance MNC; also the channel utilized can be a traditional one, the Microfinance Channel, or any other type of community based scheme.

The term micro in Microfinance refers to the lower premium to be paid and thus the lower coverage on insured goods or events, compared to traditional insurance services. Although for a policyholder the magnitude of a risk is not micro and the perils could be seriously damaging events such as a natural disaster, death, loss of livestock animals, sickness, disability, property damages, etc…

Microinsurance has been designed to mitigate different types of risks of the Bottom of the Pyramid customers, who are not included in any social or commercial insurance scheme, to secure continuity of their businesses. Microinsurance is still an experimental phase even though some products are available in several developing countries. The future challenge for Microinsurance providers is bridging the gap between an adequate and satisfactory protection for poor households and the affordability of premiums to be paid.

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