A Little Something for Everyone
IN MANY PLACES, THE LOW-INCOME POPULATION LIVES
in risky environments and are vulnerable to numerous hazards, including illness, disability, accidental death, fire, agricultural losses, flooding and other natural or man-made disasters.
They are least able to cope with any of the mentioned crises. Although they have informal means to manage risks, informal coping strategies generally provide insufficient protection. It tends to only cover a small portion of the loss and they will need to seek support from other sources.
Microinsurance is defined by its highly specific coverage designed for low-income groups to protect against specific perils in exchange for a small regular premium payment proportionate to the cost of the risk involved. In this respect, "micro" also refers to a small financial transaction that each insurance policy generates.
Generally microinsurance is for persons ignored by mainstream commercial and social insurance schemes. It also covers persons working in informal economy with irregular cash flow. An important aspect of microinsurance is that it can be delivered through different channels such as small community-based schemes, cooperatives as well as conventional insurance agencies. There has been a case where a large insurance company had initiated with the United Nations Development Programmes (UNDP) to provide insurance for the poor in countries such as India and Indonesia. As mentioned earlier microinsurance could cover variety of risks, including illness, death and property loss.
The characterisation of microinsurance is by its product features and is further complemented by the definition of microinsurance agents, those appointed by and acting for an insurer, for distribution of microinsurance products only.
Bank Negara Malaysia is promoting microinsurance to the insurance industry through the “Microinsurance and Microtakaful: Discussion Paper” presented on April 18, 2016, which
A strong understanding among the low-income group of how insurance can address the financial needs is vital for the growth of the insurance market.
provides the regulatory framework to facilitate microinsurance/microtakaful market growth.
It is an initiative to promote financial inclusion i.e. to promote demand for insurance and takaful protection amongst the low-income and lower middle-income households, which were otherwise left out due to unaffordable premium.
The importance of financial inclusion is to ensure balanced and sustainable economic growth of Malaysia as the country moves towards a high-income nation as articulated in the Financial Sector Blueprint 2011-2020. In Malaysia microinsurance is still at the early stages of development.
Bank Negara has identified key challenges and imperatives for a successful rollout of microinsurance. The central bank is developing a proportionate regulatory framework to provide a facilitative environment for microinsurance market growth. The framework’s objective is to enable the market growth and innovation in microinsurance while maintaining the product quality and business sustainability.
The availability of microinsurance products is important as an alternative coping strategy by providing immediate temporary relief in event of misfortune, able to access financial resources and having peace of mind knowing that financial relief is available in an easy and timely manner.
A strong understanding among the low-income group of how insurance can address the financial needs is vital for the growth of the insurance market. Hence, insurance education is key to this success.
Microinsurance products should exhibit the following principles namely; simple and easily understood, protection provided is relevant to needs, premium/contribution is affordable, distribution channel is accessible, product features suit target groups and all processes are timely.
In order to support these principles, the product should have features such as only maximum of 3 risks covered, first-loss or fixed-benefit basis, simple underwriting, no exclusions, 15day free trial period and 30-day for both general/life insurance, 6-month waiting period for disability, natural death and medical and health, no waiting period for personal accident, on the spot issuance of certificate, dedicated call centre, claims payout within 7 working days of claim receipt, immediate partial or interim payout to meet urgent needs pending full claims verification.
The licensed persons are allowed to appoint agents to distribute microinsurance products and are called microinsurance agents. They are responsible to sell only microinsurance products, may assist with marketing, explaining product features, effecting the contract, claims submission, claims payout and processing relevant documents for the clients.
In closing, microinsurance will provide a big opportunity for insurance companies who are willing to take risks in venturing into an untapped market of the population.
Generally microinsurance is for persons ignored by mainstream commercial and social insurance schemes.