Micro insurance is insurance with low premiums and low coverage. It primarily focuses on helping poor families by offering coverage to low-income households and individuals who have little savings. They are tailor-made specifically for lower valued properties and compensation for illness, injury or death or belongings, such as, huts, livestock or instruments. It is often found in developing countries, where the current insurance markets are ineffective or non-existent. Because the coverage value is lower than a usual insurance plan, the insured people pay considerably smaller premiums.
Micro insurance also includes community-based financing arrangements, including community health funds, revolving drugs funds and community involvement in user-fee management. Most of these financing schemes have developed in the context of severe economic constraints, political instability and lack of good governance.
One of the most common constraints in micro insurance is the premium collection. Due to most people living in rural areas that are not always connected to telecoms and other financing infrastructures, policies are frequently unpaid and then lapse. Digital money and especially mobile money overcomes this barrier. It enables people to get insurance coverage for a specific event or a short time frame in which, for example, they use public transport or expect heavy rain / hail. Here is an emerging market that is virtually up for grabs. The African insurance industry has to keep in mind is that the products need to be suitably tailored.
Brandon Matthews, Head of Microinsurance at Zurich Financial Services, said this about micro insurance:
‘I was stranded in New York City during the 2003 blackout, and for the next two years, I carried a small flashlight in my backpack. The flashlight did not cost much, but its potential to help in another blackout was obvious and to use it I needed only to press a button. For micro insurance to be accepted on a massive scale, it cannot cost much, its value must be obvious, and it must be simple to use.’