Micro Life and Disability Insurance Issues, Suggestions and Next Steps Subhash Ghosh Microinsurance can help

lp low income households to deal with risk and assist their economic development. In addition, insurance markets in developing countries can provide a considerable and mostly underserved source of potential profits. Currently, there are several types of Microinsurance products such as Credit Life insurance, Personal Accident Insurance, Agricultural insurance to name a few. This paper elucidates on a few important details of Micro Life Insurance product. A. Significance and Benefits - Micro Life and Disability Insurance has two-fold benefits:1. 2. For the MFI - Ensure the repayment of loan to the Micro Finance Institute (MFI). For the borrower - Assist the surviving family members by providing them with a protection against economic shock of the funeral expense and reduced family income. If the borrower is the primary bread winner, this this is highly critical and can prevent families from lapsing into cycles of poverty.

B. Key Issues (please see attached presentation slides for suggested solutions) 1. Lack of awareness as to the benefits of insurance. This in turn leads to smaller pool of policyholders leading to volatility in the number of claims, thereby bankrupting the plan and disincentivizing the insurance company from going into the market. Payment of regular premiums seen as lacking short term benefit a critical issue for the impoverished families. High administrative cost with very little return on investment for the insurance company. Delay in claims processing leading to mistrust in the insurers and essentially defeating the purpose of insurance by failing to provide a security blanket on time. Suggested Delivery Model After analysis of (a) partner-agent (b) community-based/mutual (c) fullservice and (d) provider-driven models, I suggest use of partner-agent model in an untapped market for the following reasons:Financial ability of a major insurance company to absorb risk. Capacity to utilise the MFI network to cut down on back-end administrative work for premium collection and initial claims processing. Ability to utilize the MFI networks familiarity with the requirements of the borrower s and ability to negotiate the best rates for the borrowers. Over time and with continued awareness this can slowly move to the community based model which will provide greater flexibility. D. Suggested Implementation Mechanism - A key issue is whether insurance should be optional or mandatory. For a new market I suggest that the insurance is made mandatory. However, there will be a moral obligation on the MFI to find and negotiate with an insurance company to provide the best rates and benefits. E. 1. 2. 3. 4. Next Steps (here the assumption is that a large insurance company has agreed to enter the market and is using the established MFI network):Collaboration with other MFI networks and technical institutes for developing low cost technology for back-end administrative work. Continuous data collection for creation of more suitable plans and rate negotiations. Continuous education and spread of information regarding various products, thereby expanding the market. Expanding of the MFI network for provision of primary healthcare services (for both human and livestock) which can be combined with health insurance and livestock insurance.

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