Added Value

When designing and launching microinsurance products, several basic principles that are common to all these products should be taken into account:

• The products should be simple and easy to understand:
  • The broader is the proposed guarantee (the coverage of defined risks), the more complex and difficult to manage the product is;
  • The clauses in the insurance contract should not be ambiguous – if they are, this could entail a number of risks for the insurer or break the trust in the relationship with the policyholders. 
• The products should meet the needs and demands of the population: 
  • Surveying the target clientele’s demands, needs, difficulties and risk management strategies is the absolute first step in designing an insurance product.  Similarly to any financial product, this requires interacting with the population and partner organisations (MFIs, women's federations, cooperative management teams, trade unions, NGOs, etc.). 
  • For insurance more specifically, there may be a gap between the real needs of the population and the demand itself.  The notion of protection against contingencies is not always understood by the potential client, and even if the need for protection against a given risk exists, the potential client may not be ready to invest money in an insurance policy without any immediate “return on investment” in sight.
• The products and their distribution should be as much as possible in line with the existing popular informal insurance systems.
• The pricing and the possibility to offer coverage that varies according to the different categories of people should be thoroughly studied. 
  • Setting a price for an insurance product is a key and complex point that depends particularly on how likely the covered risk is to happen and on the target population’s features. 
  • Individual coverage logically involves higher premiums than collective coverage, apart from a few exceptions. 
  • Some techniques help to protect the insurer against the risk of anti-selection:  in health insurance for example, a whole family can be protected against a health risk (this will prevent the family from insuring only the members that are most at risk).
• The collection of premiums should be adapted to the target households’ payment capacities and income variations.
  • For example, the insurance premium collection scheme could be timed with the harvest period for farmers and rural clients, or adapted to the target clients’ saving habits.
• It is preferable to offer a simple product first and deal with more complex policies later on:
  • Even if the insurer wishes to provide low-income policyholders with as broad a coverage as possible, it should not be forgotten that broader protection requires greater expertise to succeed, while entailing higher product costs for the potential client.
  • It will always be recommended to start with simpler insurance products (life insurance) rather than more complex ones (health insurance).
  • Likewise, it is better to offer only one guarantee that is easy to manage at the beginning and diversify later.
• Evaluating the microinsurer’s expertise is necessary to know what product can be launched and how it can be launched. 

Source: Text based on Dossier thématique Micro-assurance ©2007, www.lamicrofinance.org