Microinsurance – helping make insurance available to everyone
Microinsurance is risk protection designed specifically for low-income households. It is seen as a critical tool in helping eliminate poverty.
For many people in the western world, insurance is woven into the fabric of our lives, providing a financial safety net. In emerging economies, however, insurance is not so widespread. Currently, more than one billion people live in extreme poverty without access to basic services. Research has found that these people face risks more often, and with a greater relative financial impact, due in part to living in high-risk areas such as flood plains or areas with extreme weather, as well as due to a lack of sanitation, access to clean water, hazardous working conditions and poor nutrition.
The tragedy of 2004’s tsunami starkly illuminated how precarious so many people’s livelihoods are, particularly in the face of natural disasters. It prompted Allianz to search even harder for ways of providing developing communities with viable insurance options that fit their needs and help to establish a social safety net and an effective way of reducing poverty.
One such option is microinsurance – risk protection designed specifically for low-income households.
“In the wake of a devastating event like the tsunami, a major part of helping rebuild people’s lives in the long-term is to help them feel more secure.” Geoffrey Dennis, Chief Executive, CARE International
How does microinsurance work?
Microinsurance has at its core low annual rates and is seen as a critical tool in helping eliminate poverty, because to climb the economic ladder, people need to be able to protect themselves and their families against risk. Micro-loans are not necessarily the answer as many households run the risk of falling into debt because they are not able to pay back loans. There are a number of reasons why so few people in poor and developing countries have adequate insurance, even though they are often the ones who would benefit most from having it. These include:
- lack of availability of financial products and information: insurance providers often find the administrative costs of managing large numbers of policies too high – especially when the premiums are low, and where their business has little local infrastructure.
- people seeing insurance as something they cannot afford.
To simplify the process of insurance, one contract is used to cover thousands of customers, and the key to making microinsurance easy to implement is the use of intermediary bodies. Allianz works closely with NGOs (Non-Governmental Organizations) and microfinance institutions, which are better placed (both geographically and in terms of building trust with local communities) to oversee the administrative process. Microinsurance is about having expertise in insurance, but skillfully adapting that to suit the needs of what is still a relatively new market.
During the 12 months of our pilot project in Indonesia, we hope to cover 50,000 customers. Why microinsurance instead of micro-loans? Many households run the risk of falling into debt because they are not able to pay back loans.
Microinsurance in practice
India – Bajaj Allianz
India was the initial focus for Allianz microinsurance ventures. Bajaj Allianz launched its first microinsurance product in 2003, and went on to cover more than 100,000 customers. The humanitarian crisis which followed the tsunami in 2004 prompted Allianz to team up with CARE International, an organization with extensive experience in microfinance in India. The partnership is focusing on providing tailor-made packages specifically for people who live near the coast and work in fishing, agriculture and plantations.
India was the initial focus for Allianz microinsurance ventures. Bajaj Allianz launched its first microinsurance product in 2003, and went on to cover more than 100,000 customers. The humanitarian crisis which followed the tsunami in 2004 prompted Allianz to team up with CARE International, an organization with extensive experience in microfinance in India. The partnership is focusing on providing tailor-made packages specifically for people who live near the coast and work in fishing, agriculture and plantations.
Our life insurance product in southern India charges just 0.87 USD per year, and pays 370 USD in the event of an accidental or natural death. As CARE International’s chief executive Geoffrey Dennis remarked, “in the wake of a devastating event like the tsunami, a major part of helping rebuild people’s lives in the long term is to help them feel more secure.”
Indonesia – German Technical Corporation (GTZ)
In 2005, we teamed up with GTZ, which has more than 20 years experience in the region, to research the potential for microinsurance support in Indonesia. A two-week intensive study and detailed report made a number of interesting discoveries. But the key conclusion reached was that, despite Indonesia playing host to more than 170 insurers, there is still a significant shortage of cover for low-income households. In fact, only 5 million out of 238 million Indonesians had individual life insurance. These findings formed the foundations of our microinsurance pilot product for Indonesia, ‘Paying Keluarga’ (meaning ‘family umbrella’). Normally, a premium rate Allianz package would cost roughly 10.5 USD per month, a simply unrealistic figure for many of Indonesia’s poor. Under ‘Payung Keluarga’, life insurance was made available for as little as 0.66 USD per year.
In 2005, we teamed up with GTZ, which has more than 20 years experience in the region, to research the potential for microinsurance support in Indonesia. A two-week intensive study and detailed report made a number of interesting discoveries. But the key conclusion reached was that, despite Indonesia playing host to more than 170 insurers, there is still a significant shortage of cover for low-income households. In fact, only 5 million out of 238 million Indonesians had individual life insurance. These findings formed the foundations of our microinsurance pilot product for Indonesia, ‘Paying Keluarga’ (meaning ‘family umbrella’). Normally, a premium rate Allianz package would cost roughly 10.5 USD per month, a simply unrealistic figure for many of Indonesia’s poor. Under ‘Payung Keluarga’, life insurance was made available for as little as 0.66 USD per year.
Microinsurance in Egypt
In Egypt, we have worked in collaboration with Planet Finance, Surety Fund and a number of European reinsurers to develop a pilot project offering death and disability insurance to more than 30,000 customers. This type of insurance was previously not readily available to these communities. As part of the program, financial literacy training is made available to the non-governmental sector in Egypt.
In Egypt, we have worked in collaboration with Planet Finance, Surety Fund and a number of European reinsurers to develop a pilot project offering death and disability insurance to more than 30,000 customers. This type of insurance was previously not readily available to these communities. As part of the program, financial literacy training is made available to the non-governmental sector in Egypt.
Our work in microinsurance is looking to achieve a number of goals. We not only hope to offer accessible packages to large numbers of people, but also to raise the general awareness of insurance. Meeting the demand for microinsurance has challenged us to rethink a number of assumptions about insurance, including changing the model to prioritize the sustainability of the product ahead of immediate profit. But microinsurance is inherently a long-term venture, and its combination of social awareness and financial creativity speaks volumes for what Allianz is all about.
