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Microinsurance: The little product that could

Life can be a little like walking a tightrope. Most of the time you’re able to keep your balance just fine, but then there are times when things get a little wobbly, making it tough to keep from falling. Now, by that logic insurance would be your safety net, ready to catch you if something were to go wrong —
but what about those who can’t afford a safety net?

Poverty is a very harsh reality for the majority of the world’s population. Can you believe about 80% of people around the globe live on less than $10 a day? It’s even harder to imagine that almost 50% live on less than $2 a day. And the reality is, people living in these conditions have no access to safety nets such as insurance. Well, at least they never used to.

What is Microinsurance?

You can imagine that folks in developing countries don’t really have many opportunities to earn an income and because of this they have limited access to basic needs such as food, water and healthcare. This is where microinsurance comes in. In a nutshell, microinsurance is a policy that costs no more than US$10 a year and offers low-income earners security against unexpected hardships. So, for example, if you’re living below the poverty line and rely on your crops as a main source of income, or if you’ve recently taken out a microloan to try and start a small business, microinsurance would cover you if something were to go wrong.

Without the protection that microinsurance provides, low-income earners are usually forced to use more radical modes of risk management when preparing for the worst, which sometimes includes taking kids out of school to save on costs, or selling essential resources such as livestock. These risk management strategies often lead to what is known as a ‘poverty trap’, which basically means these people continue to suffer the consequences of an event (such as a natural disaster or illness in the family) many years after it has occurred. In other words, they never have the capital needed to get them out of their financial situation, making it almost impossible to break the poverty cycle. For countries with a high number of people living below the poverty line, having access to microloans and microinsurance is one way to break the cycle.

The challenge ahead

Microinsurance products have already begun to help people in countries like India, Kenya and Malawi gain more access to agricultural loans and basic healthcare, but there is still a lot of work to be done. Insurers are now faced with the challenge of educating people unfamiliar with insurance to its importance, and finding ways to distribute the product has also proven to be a challenge. Although those of us in countries with strong insurance industries may understand the safety that insurance provides, people who don’t earn much usually find it hard to justify parting with money without an immediate benefit as every penny counts.

Although the industry has begun to see success in selling micro-products to groups such as self-help groups and trade unions, those working in insurance understand that there is still a long road ahead.

Insurance — an unexpected hero

What makes a hero? When asked this question, most of us would picture a skilled and powerful superhuman in tight-fitting spandex and a cape. But a hero’s most important attribute is their ability to help those in need — and insurance, as an industry, exists to do just that.

Products like microinsurance are springing up all over the world because the industry and everybody in it understands that every person in the world has a right to basic healthcare and financial protection. Now that you know a little more about how insurance is making a difference, wouldn’t you be proud to be a part of it?