Microinsurance is a system of protecting poor people against specific shocks using risk pooling in return for regular affordable premium payments proportionate to the likelihood and cost of the risk involved. Appropriate delivery mechanisms, procedures, premiums, and the coverage, define microinsurance policies that respond to the limited and variable cash flow of low-income households, and the often unstable economic environment in which they live.
Because their resources are so limited, poor people can experience great financial disruption when unexpected events befall on them. Even small sums insured can ensure some protection and peace of mind (and dignity) for a poor person.
Insurance Use
Between 2005 and 2009 the MFC together with the MicroInsurance Centre conducted a series of market studies in Armenia, Azerbaijan, Georgia, Romania and Ukraine to discover the potential for microinsurance in these countries.
The findings show that the use of insurance products, not only among low-income population but also among the better-off, is very limited and yet there is considerable demand for these products.
Except for Poland, insurance products have been used in post-transition times by less than 40% of each country’s population. In the countries of the Caucasus only about 10% of the population have had experience with any kind of insurance since 1990. Low-income households less often have the benefit of using insurance, most notably seen in Romania.
Use of microinsurance products in the last 15 years (percent of the population)
Source: MFC database
Demand for Insurance
Market development projections
As these is so little experience in insurance use in many countries, and even less with microinsurance it is hard to project future market development based on historical trends. The access frontier approach proposed by David Porteous (2005) is useful in projecting the market development for microinsurance. The total market is divided into four segments. Given that access frontier methodology is difficult to apply to products that are not yet on the market, the projections are done using both segmentation by attitude towards insurance and willingness to buy based on the product concept test. This combination allows much more accurate projections for each of the generic microinsurance products.
Access frontier methodology and its application
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Segment |
Description of the segment |
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Natural limit |
A group of households who is either not eligible for insurance schemes or they objectively do not need insurance. |
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Supra-market |
A group of households who may wish to buy microinsurance but are unable to, mostly due to lack of surplus income. |
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Within access frontier in the future |
A group of households who are likely to access the suggested microinsurance product concepts if terms and conditions are more adapted to them. They are also reluctant to buy now due to limited knowledge, distrust, skepticism, dissatisfaction from some product features, etc. |
|
Within access frontier now |
The percentage of households who can and wish access the suggested microinsurance product concepts on current terms and conditions. |
Characteristics of the Demand for Various Microinsurance Products
Health insurance
Given the high exposure to risk connected with health the insurance protecting against financial stress and shock in case of illness is the most demanded among insurance products.
The biggest share of the population that is ready to buy health insurance, that is fall into the ‘access frontier’ segment is located in Georgia (30% of households) and the lowest in Azerbaijan (6%). With some adaptation of insurance products between 55% and 66% of households can be reached in each country (access frontier future).
Even though the largest share of the population that could benefit from health insurance was seen in Azerbaijan, the largest potential market exists in Ukraine because of the size of the population.
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Demand for health insurance |
Demand for health insurance |
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Life insurance
The demand for life insurance is a bit lower than health insurance, but again the largest demand was seen in Georgia (20% of households) and the lowest in Azerbaijan and Ukraine (4% of households). Low-income households usually show lower interest in buying insurance products (except for Azerbaijan), and they also more often fall into the segment of ineligible (natural limit) and those who cannot afford insurance (supramarket).
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Demand for life insurance |
Demand for life insurance |
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Property insurance
In Romania and Ukraine the market for property insurance that could be covered now ranges from 5% to 15% of the population and could reach 67% in the future if appropriate products are offered on the market. In Azerbaijan and Georgia such projections are lower as there is a significant share of households (35-40%) which do not need this kind of insurance or do not own property they could insure.
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Demand for property insurance |
Demand for property insurance |
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Disability insurance
Despite the high impact of an accident leading to disability on a household’s financial condition, disability insurance is the least demanded of the four insurance products.
Only in Armenia, 13% were interested to insure themselves against permanent disability.
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Demand for disability insurance |
Demand for disability insurance |
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The findings from the studies suggest that there is significant demand which could be effectively met having addressed the issues of limited access, distrust, affordability among others.
To learn more please go the “Microinsurance” tab or contact MFC Research Manager Justyna Pytkowska at justyna@mfc.org.pl
