Microinsurance Overview

Few poor households have access to formal insurance that protects against risks such as the death of a family breadwinner, severe or chronic illness, or loss of an asset including livestock and housing. These shocks are particularly damaging for poor households that are more vulnerable and less able to absorb the financial consequences of such an event.

Definitions of microinsurance vary in their emphasis on process, product characteristics, price and the target population. The Churchill definition (2006) states microinsurance is “the protection of low-income people against specific perils in exchange for regular monetary payments (premiums) proportionate to the likelihood and cost of the risk involved.” As with all insurance, risk pooling under microinsurance attempts to allow many individuals or groups to pool risks and redistribute the costs of the risky events within the pool.

Although life microinsurance products are becoming increasingly available, microinsurance is a new field and still in the experimental stage. As MFIs expand beyond credit to a broader array of financial products, there is increasing interest to offer their clients access to microinsurance products in partnership with insurance companies. While commercial insurers provide the majority of the world’s products, mutual, cooperative and other community-based or community-led insurance organizations are emerging as providers of microinsurance. The greatest challenge for microinsurance schemes is providing real-value for poor households: finding the right balance between adequate protection and affordability.