SESSION 06. History (and the Future) of Microinsurance

6. History (and the Future) of Microinsurance.

James Jones (Director of the Katie School of Insurance and Risk Management, Illinois State University).
Krzysztof Ostaszewski (Actuarial Program Director, Illinois State University).


Microinsurance refers to all form of insurance products aimed at low-income people, typically defined as those living on between approximately $1 and $4 per day. The types of insurance products may vary, but the products are designed with the understanding of the financial limitations of the target market. Microinsuarance may be viewed as a part of the more general microfinance market, and it has arrived on the global financial scene relatively later than the more established microfinance. Nevertheless, microinsurance has taken hold and it has been growing, often against all odds. In this session, we will present an overview of microinsurance and its history, and then discuss what the future can hold for it. We will provide historical evidence on how microinsurance has supported economic activity and innovation, and what those historical lessons mean for the future.

Main objectives of the session:

  • Presentation of the history and development of microinsurance.
  • Comparison of the challenges of microinsurance versus the challenges of more traditional insurance markets.
  • Historical examples of importance of microinsurance for economic activity and innovation.
  • Discussion on the future of microinsurance.


Paper 1


Andrea Keenan, Senior Managing Director, A.M. Best Rating Services
Vice Chair, MicroInsurance Network

A view of microinsurance over the years in the context of the larger development of the insurance industry, society, the economy, politics and technology. Through the visual use of a timeline, the discussion will show how microinsurance or products that can be considered microinsurance, evolved over the decades alongside other insurance industry developments.


Paper 2

Estimating Capital Requirements to Scale Health Microinsurance Serving Rural Poor Populations.

David M. Dror
Atanu Majumdar
Nihar Jangle

Objective: Estimate the capital required to launch, scale and sustain operations of health microinsurance plans (a.k.a. Community-based health insurance – CBHI).
Methods: We develop algorithms to estimate operating costs, capital requirements, loan requirements, interest earned, loan repayments, and scaling projections. We check the plausibility of assumptions with data of 2 CBHI plans.

Results: A prototype plan, covering 40k persons in India requires US$ 62,477 to offset deficits in the initial years. Repayment of principal and interest requires 15 years. Interest rates must be below 14% p.a. Assuming ≈ 5% in US$ (10.96% in local currency -INR) the NPV is US$ 18,455 or 30% of the investment. When expressed per person, this amount is US$1.56, and a mere US$0.10 per policy-year (over 20 years). Even the poorest populations can pay such overhead on top of very low annual premiums (US$ 3.51 to US$ 4.71 per capita). Operating costs drop with increase in enrollment, renewal, and average insured household size. Cumulative claims ratios stabilize at ≈70% (benchmark: 73% and 69%, in Bihar and Nepal). The CBHIs can generate additional resources for healthcare, estimated at US$52 (over 15 years) and US$85 (over 20 years) for every US$1 borrowed at inception.
Conclusions The financial gains to investors flow from interest payments. Impact investors and CBHI plans have a margin to negotiate the interest rate from zero to 14 percent. The financial gains to the insured consist of the assets accumulated over and beyond payments of benefits. The amounts and the income smoothing effects are considerable. The social effects include extending health insurance to uninsured rural populations. The governance gains flow from large-scale standardization of rule-based participatory management of these mutual-aid plans. This investment opportunity is scalable from a small to substantial ticket size because the amount per CBHI plan is modest. The size of the investment determines the scale of populations covered. Governments and policymakers may contribute by creating a supportive regulatory environment. Governments could also consider collateral arrangements. Such investments cum supportive regulations may enable the development of a new market for reinsurance of outlier risks written by CBHI plans.

Keywords: Microinsurance, health insurance, capital requirements, sustainability, scaling, business case.


Paper 3

Microinsurance Lessons from History.

Michael J. McCord

Microinsurance providers wrestle many challenges associated with delivering financial protection to the poor including modifying insurance products, marketing methods, distribution schemes and regulatory policies to fit the particular circumstances and needs of the poor in developing countries. While the problems may be challenging, not all of them are new. Indeed much of early insurance in now developed countries was microinsurance. Insurance markets in these countries historically faced similar issues as we do in microinsurance today. The MicroInsurance Centre’s MILK Project examined aspects of the record of life, property catastrophe and health insurance markets in developed countries that are particularly relevant to microinsurance and gleaned lessons arising from their challenges and successes.


Paper 4

The < Union of Farmers of Cosuenda >: a pioneering institution of microinsurance in the seventeenth century in rural Spain. The protection of mules and the productivity growth.

Francisco J. Marco-Gracia (Stellenbosch University, South Africa)

In the seventeenth century, an institution was created in a rural Spanish village -less than 1,000 inhabitants- to take its inhabitants out of widespread poverty: the <> (Jarque and Salas, 2007). This institution was created by the priest. The fundamental idea was very simple: the insurance of the mules. Each local farmer who owned mules could insure them by entering the ‘Union’. For each mule, an entry fee was paid, and each year the farmers had to work on the communal lands (and, occasionally, pay a sum distributed among all the insured). When a mule ceased to be useful to the owner, an amount was paid to him to replace the mule. The results were immediate and very satisfactory. In the pre-industrial world, increases in wealth were transformed into population growth (Clark, 2007:1). Cosuenda increased its population during the following centuries at a rate much higher than that of any neighbouring village. The institution was in operation for more than 200 years. The mules favouring the change of cereal production by more intensive crops in animal strength. This paper analyses with individual demographic microdata (age at marriage, number of children, child survival rate, etc.) how this population growth occurred. The paper compares between 1650 and 1850 the families that belonged to the Union of Farmers (depending on the number of mules and land), local day-laborers families and other families living in nearby locations. The results show that the Union of Farmers was very beneficial for its members at a demographic level, allowing a lower age at marriage, increasing the number of children and their survival rate. In short, this article analyses a successful and little known proto-microinsurance from a new perspective.