Financial inclusion the microinsurance way

In recent years, the concept of microinsurance has emerged as a powerful tool for providing affordable insurance coverage. As a form of insurance tailored to meet the specific needs of the underserved population, microinsurance has the potential to significantly disrupt the traditional life insurance models in Kenya as it happened in India. India, with up to 37 percent of its population living below the poverty line, microfinance has supported sustainable livelihoods by enabling low-income earners to manage risks such as accidents, illness, theft, death and funeral expenses, fire and natural disasters such as flood and drought. The traditional life insurance model uptake in Kenya over the years has acquired a stretched U-shaped curve. At the introductory stage, life insurance covers were a preserve for the high-income earners. Only the wealthy afforded insurance, a situation that changed over the years due to liberalisation of the economy, focus on customer experience and digital transformations. However, the trend is creeping back but this time it is mainly due to low levels of disposable income especially among Kenyans in the informal sector. One of the significant ways microinsurance influences life insurance is by extending coverage to individuals with unpredictable and inconsistent income. Life insurance has often been associated with higher premiums and strict underwriting requirements, making it inaccessible to many low-income individuals.?

Microinsurance products, on the other hand, are designed to cater to the specific needs and financial capabilities of the underserved population. By providing affordable premiums, flexible payment options, and simplified underwriting, microinsurance enables better access. Traditional life insurance products often offer standardised coverage but microinsurance can be customised to cover specific risks such as funeral expenses, education expenses, farm losses, flexible life covers, or income protection for informal workers. This design is expected to provide a safety net against unexpected risks for many low-income individuals and households that are vulnerable to perils such as natural disasters, health emergencies, or loss of livelihood. By reducing vulnerability and enhancing resilience, microinsurance supports financial inclusion and empowers marginalised populations to participate effectively in economic activities that has a positive impact at both the individual and community levels. The influence of microinsurance on life insurance extends beyond extending coverage and promoting financial inclusion. It has sparked collaboration and innovation within the broader insurance industry. Providing tailored coverage according to needs, income and nature of risks, microinsurance can extend the benefits of life insurance.

Credits: BD, 11th May, 2023 & Writer: Benard Aloo, customer experience specialist with Madison Life Assurance