Insurance acts as a safety net and risk mitigation mechanism that can reduce the vulnerability of poor households to adverse life events. Microinsurance encompasses several products: health, life, agricultural, disaster insurance and more. These products, however, are either unavailable or prohibitively expensive in many developing countries. Most consumers also struggle to understand how insurance products work and how they can generate long-term benefits.
Microinsurance, the delivery of insurance products to low-income clients, is a powerful tool to help low-income households protect themselves against risks and losses that can trap them in a vicious cycle of destitution.
Consumer protection is critical to developing and distributing insurance products. Empowering consumers, gainconfidence and trust, and become better positioned that they can play an active role in protecting themselves and by using insurance products effectively. A recent paper by the Microinsurance Network on “Challenges and Good Practices in Consumer Protection in Microinsurance” highlights the need for a coordinated approach in which regulators and supervisors, industry players, and consumers themselves all share the responsibility to develop a fair and sound microinsurance industry.
The main challenge in consumer protection in microinsurance is to strike the right balance between effectively protecting the consumer and increasing access to microinsurance by promoting the development of the microinsurance market. Efforts to stimulate the market scale of microinsurance and increase access to insurance must be balanced against consumer protection needs, but in the long term there are synergies between the two. Given that effective consumer protection promotes stability, value, and trust in microinsurance, scale and access goals will also ultimately benefit from consumer protection.
Global initiatives include:
- The Access to Insurance Initiative aims to support implementation of sound regulatory and supervisory frameworks consistent with international standards.
- MicroInsurance Centre’s Client Math: provides a quantitative assessment of the plausible gains consumers will have by having insurance.
- The Global Index Insurance Facility (GIIF) is a multi-donor trust fund supporting the development and growth of local markets for weather and disaster index-based insurance in developing countries, primarily Sub-Saharan Africa, Latin America and the Caribbean and Asia Pacific.
- The International Association of Insurance Supervisors (IAIS) —the global standard setting body for insurance services—co-drafted a “Guidance paper on regulation and supervision supporting inclusive insurance markets”
- The Key Social Performance Indicators developed by ADA, BRS, the Microinsurance Network, GIZ and Grameen Credit Agricole: a set of indicators for microinsurance practitioners seeking to track, demonstrate and enhance the social performance of their operations.
- ILO’s PACE (Product, Access, Cost and Experience): a tool to assess the client value of microinsurance products in relation to alternatives providing protection for similar risks.
- SMART Insurance Toolkit: “a guidance tool for art Microinsurance” for microfinance institutions (MFIs) that serve as intermediaries, offering microinsurance products provided by an external insurance company.