Microinsurance is generally, but inaccurately, referred to as a new concept. It first appeared as a new financial service within microfinance and then developed into a sector of its own. However, it is only the term - Microinsurance, Micro-Insurance or Micro Insurance - that is fairly new. The history of microinsurance cannot, in fact, be examined without looking at that of insurance.
The origins of insurance
The concept of insurance dates back to around 3,000 BC in China where merchants and their investors shared the risk of goods lost when shipping overseas. A similar concept evolved in Babylon; the Greeks and Romans introduced the origins of health and life insurance around 600 BC when they created benevolent societies which cared for the families of deceased members.
England's first fire insurance company was launched following the Great Fire of London in 1666. Around the same time, Mr. Edward Lloyd opened a coffee house that was a popular haunt for those in the maritime industry and became a meeting place for those wishing to insure ships and cargoes. Thus, Lloyd's of London was established. At the end of the 17th Century, the first mortality table was created, which marked the first step in the development of modern life insurance.
The term "microinsurance" was first published around 1999 and in the development environment, defining it has been subject of much debate and discussion. The definition of microinsurance is continually evolving:
- The protection of low-income people against specific perils in return for regular premium payments proportionate to the likelihood and cost of the risk involved (Preliminary Donor Guidelines, 2003).
- A risk transfer device characterised by low premiums and low coverage limits, and designed for low-income people not served by typical social insurance schemes (Micro Insurance Academy, India, 2007).
- Insurance that is accessed by the low-income population, provided by a variety of different entities, but run in accordance with generally accepted insurance practices. Importantly this means that the risk insured under a microinsurance policy is managed based on insurance principles and funded by premiums (International Association of Insurance Supervisors, 2007).
- A mechanism to protect poor people against risk (accident, illness, death in the family, natural disasters, etc.) in exchange for insurance premium payments tailored to their needs, income and level of risk (ILO's Microinsurance Innovation Facility, 2008).