Consider a farmer that lost his crops in a draught. Or a small shop owner who lost all his stock in a flood. Digging a bit deeper, both of them must have taken loans to finance their crops and stock. But you know what would happen now. They would be thrown below the poverty line. People with limited resources often have to face such circumstances. But here comes the savior, microinsurance! It can save low-income families from such disasters, which can snatch food and shelter from these people.
What Is Microinsurance?
Microinsurance extends the benefits of insurance to the less-privileged, the low-income group. This group includes rural people in developing countries like South Africa, India, China, and Brazil. Many people here are often bereft of the social insurance and medical facilities that other people identify as ‘regular.’
You can buy microinsurance policies at very low premiums. It is so because the coverage they provide is also not very high though enough to cover the needs.
It, like regular insurance policies, covers many types of needs. It can cover death, injury, illness, possessions, and assets. Some examples of the risks covered by microinsurance are- crop insurance, livestock/cattle insurance, death insurance, theft insurance, fire insurance, disability insurance, term insurance, natural disasters, etc.
Don’t you think microinsurance can make life so much secure and easier for those with limited resources? It can take a lot of stress away from their shoulders. And now that they are safe, they can grow their businesses consistently. And also protect their assets like livestock and land from being sold during the times of financial difficulties.
You might feel insurance and microinsurance are pretty the same, but there are many differences between them. Let’s see!
What Is The Difference Between Traditional Insurance & Microinsurance?
#1: Policy Complexity
Traditional policies are much more complex than the microinsurance policies. Conventional policies have many clauses, limitations, and exclusions. While its counterpart has minimal exclusions and the policy is written in easy words.
#2: Group Policies
Conventional policies offer group policies, while microinsurance doesn’t.
#3: Nature Of Clients
Traditional policies have ‘easier clients’ as the clients are familiar with the concept and benefits of insurance. But microinsurance is not that privileged. They have to convince and educate people about the idea and benefits of insurance. Thus, it is a challenging and very high-risk field.
#4: Calculation Of The Premium
Traditional insurance calculates the premium according to the individual’s characteristics, like age, location, etc. In contrast, its counterpart doesn’t calculate premium this way. Microinsurance has group pricing and a very price-sensitive market.
#5: Premium Collection
Conventional insurance companies collect premiums yearly/monthly or lapse the policy. On the other hand, microinsurance lets clients pay in irregular payments subject to the client’s financial situation.
Lastly, claim handling in traditional insurance is complex, with a lot of paperwork but not microinsurance. Claim handling is fast and easy.
Now that we understand what microinsurance is, let us get to know its importance.
Benefits Of Microinsurance To The People
There are many direct and indirect benefits of microinsurance to the low-income group. Here they are:
#1: It Is Like A Safety Net
Low-income groups have limited resources. And these resources enter the danger zone when a disaster strikes. But with microinsurance, their assets are secured. Also, they do not need to start eating less food or send children to work to make ends meet.
#2: They Get Access To Vital Services
Health care and agricultural services are their right too. And insurance companies can help them get access to these services.
#3: They Invest More In Their Livelihoods With Insurance
There is evidence that they invest more in their livelihoods when they are secured with the insurance. This will result in more productivity and a better income altogether.
#4: They Get Access To Tangible Benefits
People in rural places live a very different life. They hardly get vaccinated and are bereft of essential medical services. And insurance companies can help them gain access to them.
#5: Insurance Companies Can Help Reduce Risks
Even the basic knowledge that a flood is about to come or a draught is possible this year can help villagers a lot. With these small steps, insurance companies can help reduce risks for these people. After all, the insurance companies have an incentive to do so.
Thus, by providing microinsurance, companies can take up a lot of social responsibility as well. But is this a charity for them? Well, no. There are advantages for corporates as well. Microinsurance is a field where corporate and social benefits tread the path together.
Benefits Of Microinsurance To Insurance Providers
#1: Portfolio Diversification
Expanding the portfolio and entering into newer domains is always good for business health in the long term.
#2: Reputational Benefits
When you do something to uplift the society, you gain people’s trust, which is good for your overall reputation.
#3: Advantage Of Making The First Move
The microinsurance industry is in its infancy and has massive potential for growth. And if you start in this field early, you will already have all the business insights and network in place before most people begin entering the field.
#4: Accept This As Corporate Social Responsibility
Not everything is business. Giving back what you took maintains a sustainable balance as a whole. And corporate social responsibility is just that. You help people get essential services and financial security, and that will travel far and wide as a good gesture.
In A Nutshell…
Microinsurance is an industry that has an untapped potential of billions of dollars. But the best part is that this idea can change so many lives. It can uplift the society and the economy as a whole. Microinsurance though challenging, if implied the right way, can change the community as we see it. It has the potential to empower people.
So, this was everything about microinsurance and its importance. We hope you liked the content. And if you have any questions, doubts, or suggestions, drop them in the box below. We are all ears and reply ASAP.