Microinsurance Schemes for Property: Examples from Latin America

Abstract eng:
Microinsurance can be defined as the provision of insurance to low-income households that otherwise do not have access to insurance. It is a natural supplement to microfinance and has the potential of creating a new market for the private sector while complementing the public sector’s efforts towards social security for workers in an informal economy. The challenges of microinsurance are manifold. Premium income is low, administrative costs tend to be relatively high, and infrastructure for insurance is lacking. Intimate knowledge of local conditions and requirements is indispensable. The policy-holders are poor and often illiterate people. They often do not dispose over a bank account and may not have a regular income. Therefore, the design of microinsurance products requires innovative solutions regarding distribution channels, premium payments and loss regulation. The design of the policy must be kept as simple as possible. Further on, PML estimates for microinsurance risks are normally much higher than for traditional business because the clientele and their property are more vulnerable to natural disasters. This is due to often poor construction standards and/or dangerous locations. An innovative solution from Colombia, combining newly developed life and property products for low-income groups and micro-entrepreneurs has been successfully implemented. In addition a solution to protect the balance sheet of microfinance institutions in case of natural disasters has been developed. Based on the Colombian experience similar business models are currently being designed in other Latin American markets. Microinsurance with its new challenges opens a promising and important new field of application for EQ-Engineering within the framework of modern disaster management.

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