Microinsurance Market Research Articles

Government interventions in microinsurance: evidence from China

The microinsurance market suffers from severe market failures; thus, government interventions are increasingly used to stimulate its functioning. Our article evaluates, from a law and economics perspective, whether these interventions are effective in increasing access to insurance without inducing moral hazard and adverse selection. We then use this framework to evaluate typical types of government interventions in the Chinese microinsurance market (subsidisation, simplification, use of group policy and established distribution channels). Using practical cases, we further identify solutions to remedy the market frictions induced by government interventions. We find that government interventions are only effective under certain conditions: (1) stable and smartly designed subsidies are provided or innovative market practices are subsidised; (2) insurance policies are easy to understand; (3) product distributors are properly trained or licensed; (4) group policies can be renewed.

Asymmetric Information in Microinsurance Markets: Experimental Evidence from Mexico

Microinsurers strive to simplify products and their pricing, a trend that runs counter to the customization and complex underwriting of insurance in richer markets. Although necessary to reduce costs and reach wide scale, this trend opens microinsurance markets to potential problems from information asymmetry. We use a large data set from a Mexican bank that offers a life insurance policy to its borrowers at a single rate. We exploit an exogenous determinant of insurance purchase to test for systematic use of private information by potential insurance clients. We find evidence of strategic behavior on the part of borrowers stemming primarily from insurers not using available borrower information but no evidence that individuals are acting systematically on information unobservable to the insurer. Our results provide robust evidence that individuals’ behavior in a life microinsurance market is not driven by private information, although theory predicts that this market should strongly suffer from information asymmetry. In addition, our findings have policy implications for the design of microinsurance products and for increasing financial access in developing countries.

Applying the Tweedie model for improved microinsurance pricing

Microinsurance usually involves basic rate making due to the scarcity of data and the lack of actuarial skills, causing microinsurers to add significant charges to premiums to compensate for unexpected variations in risk assessment. The situation could be improved by applying predictive modelling techniques to enable better pricing in the microinsurance market. This paper proposes the application of a generalised linear model with the Tweedie compound Poisson–Gamma distribution for a bundled microinsurance in the Philippines. The risk factors considered are mainly derived from the available database and are related to the features of the insured. The results of the predictive analysis point out that there are three predictors that best fit the model: age of the insured, policy age, and population density. The application of the Tweedie model provides fair and accurate risk premiums that outperform the model currently applied by the company and enhance its risk control.

Human Capital's Perception and Attitude towards Micro Insurance

The range of topics for microinsurance market potential research can be broad, depending on the intended use of findings and the time and resources available. Research can be carried out at three levels, namely understanding client needs, including their current risk management behavior, product-specific research and an analysis of the overall market potential. Thus, keeping in view the foregoing discussion on the market potential researches in the area of microinsurance, the present effort subsumes knowledge, perception, and attitude of rural human capital about insurance. The first section of the study elaborates the backdrop/statement of the problem, the second section outlines the objectives, and the third section discusses the Sample Design, Data and Methodology of the Study. Findings of the study have been outlined in the fourth section and the fifth section concludes the study and offers fruitful suggestions for extending microinsurance to the rural poor who are indeed a human capital of the nation.

An analysis of the development influences of the low-income cover market-end in South Africa

The National Treasury and Financial Services Board in 2011 highlighted the urgent need of an inclusive insurance sector for low-income households known as microinsurance. The ‘insurance gap’ representing many low-income earners who are still uninsured remains a challenge in South Africa. This study therefore analyses the factors affecting the low-income cover market-end development in South Africa. These factors and criteria were empirically validated and a structured questionnaire employed as measuring tools to determine microinsurance penetration influences. A total of 123 responses were analysed from a non-probability sampling of 200 insurance employees. The results show that none of the factors portrayed satisfaction with microinsurance penetration and all the mean values were below 60%. Therefore, business strategies must be employed for an inclusive microinsurance market. All the factors need managerial address.

The Good Practice in Marketing Microinsurance Product : Evidence from Indonesia

The purpose of this study is to investigate the good practice of the microinsurance industry in Indonesia, using a case study of three microinsurance providers, namely Allianz, Prudential, and Asuransi Central Asia (ACA). In addition, this study also aims to analyze the challenges, of the microinsurance industry in Indonesia. Results from this study reveal that despite the large market potential for microinsurance in Indonesia, there are challenges that should be addressed, to boost the growth of the microinsurance industry in Indonesia. To respond to this challenge, attention should be focused on consumer protection, and consumer appeal aspects. From the three microinsurance providers discussed in this study, viable approaches to implement when competing in the microinsurance market in Indonesia, including market research to understand the behavior of low-income consumers, the extensive distribution of partners, consumer education practices, and corporate values that demonstrate the dedication of the company, to serve low-income consumers.

Asymmetric Information in Microinsurance Markets: Experimental Evidence from Mexico

Microinsurers strive to simplify products and their pricing, a trend that runs counter to the customization and complex underwriting of insurance in richer markets. While necessary to reduce costs and reach wide scale, this trend opens microinsurance markets to problems of information asymmetries. We use a large dataset from a Mexican bank that offers a life insurance policy to its borrowers at a unique rate. We exploit an exogenous determinant of insurance purchase to test for systematic use of asymmetric information. We find evidence of strategic behavior on the part of borrowers stemming primarily from insurers not using available client information. This is contrary to the conventional asymmetric information problem which rest on self-selection based on unobservable characteristics. In addition to providing evidence about asymmetric information in a new insurance market, this research has policy implications for the design of microinsurance products and for increasing financial access in developing countries.

On the Impact of Agricultural Livestock Microinsurance on Death-Loss, Production and Vaccine Use: Observations from a Quasi-Natural Experiment in China

Moral hazard remains a major concern in microinsurance markets in most developing countries. However, it is hard to find good measures and control individual heterogeneity to make reliable tests. We address these problems by taking advantage of a natural experiment due to an insurance company’s policy change in Deqing County China in 2009 and 2010. We investigate the effect of pig insurance on death loss, production and vaccine use based on a detailed household survey. Difference-in-differences and propensity score-matching estimators show that insurance’s effect on mortality and vaccine use is not significant for both hogs and sows. Thus, there is no evidence of moral hazard. However, the insurance does have a positive impact on hog production, but not for sows. These results show that moral hazard problems should not be the main barrier to developing the livestock microinsurance market.

The Determinants of Microinsurance Demand

The purpose of this article is to structure the extant knowledge on the determinants of microinsurance demand in a manner that achieves several outcomes. First is to offer a specific economic structure to the review through use of Outreville’s insurance demand framework. Second is to identify key questions that arise out of structuring the material in this way. In particular, we attempt to clarify the critical open questions in microinsurance demand through use of Outreville’s framework. Third, through comparison with literature on traditional insurance demand, we identify opportunities to understand not only the microinsurance market better, but also the traditional market. To achieve these outcomes, we review the academic literature on microinsurance demand published between 2000 and early 2014 and compare these results with evidence in the literature regarding traditional insurance markets. The review identifies 12 key factors affecting microinsurance demand, and further highlights that research focused on the role of contract performance (including basis risk and quality), trust, financial literacy and informal risk-sharing mechanisms may be most fruitful in expanding microinsurance markets.

Regulation in Microinsurance Markets: Principles, Practice, and Directions for Future Development

Regulation of any market can either promote or impede its development, thus affecting social welfare. In this paper, we are concerned with the impact of regulation in microinsurance markets. We evaluate existing and potential regulatory mechanisms with regard to its underlying economic rationale, and offer recommendations intended to enhance support and minimize barriers for microinsurance market development. Specifically, we recommend avoiding incentives for regulatory arbitrage; responding to the characteristics of the microinsurance market, including licensing, capital, reinsurance, and distribution systems; enhancing the market through financial literacy initiatives; and providing support in the form of data collection and management training.

The ‘rule of experts’ in making a dynamic micro-insurance industry in India

India is reported to have the most dynamic micro-insurance market in the world and the largest weather-index insurance market among developing countries. This is interesting because, paradoxically, reports readily suggest that the primary hindrance for the industry is the widespread lack of effective demand for insurance. This paper seeks to identify, understand and problematize the paradox of resolutely promoting micro-insurance and its apparent rapid growth despite a manifest absence of demand for insurance. Neo-classical theories about risk-averse behaviour do not explain the current lack of appeal of insurance among the poor. Rather, I draw on a postcolonial political economy framework to argue that expert investment in getting prices and culture right while safeguarding micro-insurance supply currently explains the celebrated dynamism of Indian micro-insurance. I argue that promoting comprehensive institutional reform for an ideal investment and entrepreneurial climate involves securing mutually beneficial linkages, collaborations and knowledge within a broad assemblage of profit motives, insurance expertise, policy-makers and professionals. Insurance experts rule by promoting the micro-insurance sector while simultaneously investing in and gaining from discursive, material and pedagogical construction of this industry. Future research should address whether such processes and products are effective in managing financial risks of the poor.

Regulation in Microinsurance Markets: Principles, Practice, and Directions for Future Development

Regulation of any market can either promote or impede its development, thus affecting social welfare. In this paper, we are concerned with the impact of regulation in microinsurance markets. We evaluate existing and potential regulatory mechanisms with regard to its underlying economic rationale, and offer recommendations intended to enhance support and minimize barriers for microinsurance market development. Specifically, we recommend avoiding incentives for regulatory arbitrage; responding to the characteristics of the microinsurance market, including licensing, capital, reinsurance, and distribution systems; enhancing the market through financial literacy initiatives; and providing support in the form of data collection and management training.

Pricing Funeral (Burial) Insurance in a Microinsurance World with Emphasis on Africa

Funeral (burial) insurance is one of the most common microinsurance policies sold in Africa. Funeral insurance is important because it pays for the cost of funeral arrangements, thus forming an important part of protection for low-income workers. We develop a model of a microinsurance market in an African context where funeral insurance policies are sold to low-income households through a burial society, which contracts with a risk-neutral profit-maximizing monopolistic insurer to supply funeral insurance policies. We assume the burial society is sufficiently large that it has bargaining power and can negotiate on behalf of its members. The burial society requires that the insurer offer separate policies that are affordable to both low-risk and high-risk individuals and waiting periods cannot exceed m months. Applicants for insurance are identical except for their mortality, which is known to the insurer except for a single parameter called the frailty parameter. As death benefits and premiums are low, the insurer cannot afford to use a costly but effective underwriting technology to provide accurate information on each applicant's future mortality. To mitigate the effect of adverse selection, the insurer uses a simple low-cost practical underwriting strategy that requires all applicants to complete a questionnaire on their personal/family medical history, certify their “good health,” and confirm that they are gainfully employed. The insurer also includes a waiting period before policyholders are eligible for death benefits. As there is no established actuarial theory that suggests how the optimum waiting period should be determined, the objective of this article is to establish a sound basis for determining both the premium and the waiting period for these policies. To this end we develop a discounted expected utility model of consumption by members of a burial society and use this model to determine the optimal premiums and waiting periods subject to solvency, lapse, and participation constraints.

Pricing in Microinsurance Markets

Summary Microinsurance markets have exhibited strong growth rates in recent years. Great parts of the industry are, however, challenged by fundamental issues of providing insurance products, one of the most significant of which is pricing risk. In this paper, we provide a nontechnical analysis of insurance pricing problems and a review of the set of opportunities that can address some of the specific pricing constraints in microinsurance markets. A key contribution of this paper is the investigation of conventional techniques as potential solutions for improving the pricing of insurance risk in microinsurance markets.

Insurability in Microinsurance Markets: An Analysis of Problems and Potential Solutions

This paper provides a comprehensive analysis of the insurability of risks in microinsurance markets. Our aim is to enhance the understanding of impediments to and facilitators of microinsurance from an economic perspective and outline potential solutions. The motivation for conducting this analysis arises from two important aspects. (1) Despite strong growth of microinsurance markets in recent years, more than 90 per cent of the poor population in developing countries have limited or no access to insurance. (2) Industry practitioners frequently highlight problems in the insurability of risks that hinder the development of microinsurance. We review 131 papers and find that the most severe problems stem from insufficient resources for risk evaluation, small size of insurance groups, information asymmetries and the size of the insurance premium. On the basis of the analysis, we discuss a number of potential solutions such as, for example, a cooperative microinsurance architecture.

Comprehensive Homeowners Microinsurance in Brazil: Estimation of Pricing and Market Potential

ABSTRACT This study examines the question of comprehensive microinsurance for Brazilian homeowners. In particular, the study calculates (i) pricing for selected types of microinsurance homeowner's coverages and insured amounts and (ii) the estimated market potential of this product. The Brazilian agency charged with responsibility for regulation of private insurance, SUSEP, has determined that microinsurance should be aimed at families with a monthly per capita income of up to two minimum wages. According to this criterion, the study finds that there are more than 42 million households in Brazil eligible for microinsurance. The study also finds that microinsurance premiums for these households would be very low (US $0.97 to 2.03 per month)—less than 1% of average household income. This type of insurance would certainly be viable, considering the calculated market size of approximately US $780 million per year. These figures show that there is significant potential for the expansion of the microinsurance market in Brazil.

An Analysis of Organisational, Market and Socio-cultural Factors Affecting the Supply of Insurance and Other Financial Services by Microfinance Institutions in Developing Economies

This article first investigates the microfinance—principally microinsurance—market at the global level and the business structure of over 600 microfinance institutions (MFIs) in 83 countries that were in operation during 1998–2007. It then empirically examines the impact of organisational, market and socio-cultural factors on the supply of insurance, lending and savings services by MFIs in developing countries. Findings from a series of probit analyses indicate that a rise in the financial expense ratio, loan repayments in arrears, years of operation, number of borrowers, woman borrower ratio, life insurance penetration ratio and family size positively affect MFIs’ willingness to expand their operations, certainly to microinsurance business. In contrast, they are likely to stay away from the insurance market when their loan asset ratio, bad loan write-off ratio or average loan size in comparison to GNI per capita is on the rise. It seems MFIs focus on lending service in Muslim populous countries. Finally, we find no evidence that presence of insurance affects availability of savings service, and vice versa, in the microfinance market.