Microinsurance is a relatively new financial service designed as affordable insurance for the poor … typically in developing countries. In concept, the microinsurance products are similar to regular insurance products except they are typically providing benefits on a much smaller scale requiring a different approach in order to be feasable and sustainable. Microinsurance products can cover health, life, disability, crops/weather, housing, capital equipment and almost anything else which can be insured.
Increasingly, microfinance institutions (MFIs — banks for the poor) are experimenting with new microinsurance both as a benefit to their clients as well as a method to reduce risk. One of the top reasons that microloans fall into arrears is due to health issues (including death) of the borrower or in their family. Many MFIs already have required life insurance built into their microloans so that if the borrower dies, the loan is automatically paid off and surplus can be used by the family to pay for funeral arrangements and give them some time to start earning again.
I just got back from participating in the Unitus Leadership Summit in Malaysia. I wanted to highlight examples of two innovative pilots of microinsurance which were discussed.
Grameen Koota, a MFI based in Bangalore, India has been piloting a health insurance program in 2 branches for the last year for their microloan clients. They have priced this program at about $3/person/year so a typical family of 5 can be insured for less than $1.50/month. For this fee, they are able to provide free outpatient services, free surgeries, significant discount on generic drugs and 3 hospital day stays per year. The clients are able to use convenient, designated local hospitals for health services. They are expecting that they will need to charge a small co-pay for outpatient services (less than $0.25) when they roll out the program more widely into other areas.
Jamii Bora Trust (JBT), a MFI based in Nairobi, Kenya is now serving more than 130,000 members with microloans and other financial and social services. When JBT experienced some microloan repayment issues in 2000, they researched and found that the #1 reason was health issues with a family member. In over 80% of the cases, borrowers were paying hospital bills first and therefore were not able to make loan repayments. JBT did research and found the cheapest commercial option they could provide to their members would cost $100/person/year which was way too expensive for their clients. They found a local Catholic hospital group which agreed to partner with them for a cost of $15/year to insure a borrower plus up to 4 children! Even at this amazing low cost, JBT has run this health insurance program at a surplus every year while providing good, basic healthcare services to their members.
These innovations are pioneering new models of affordable and sustainable healthcare solutions for the poorest of the poor. Credit is important in providing opportunity to generate new wealth. Insurance is a key tool in providing the important safety net from calamities/misfortune which otherwise might wipe out all assets (and earning potential) and place victims back into desperate poverty. Please post comments on other experiments and progress in microinsurance that you are aware of.