vulnerable or backward classes, and other categories of persons in both rural and urban areas). Although the evidence on requiring insurers to provide
microinsurance is mixed (as insurers may consider the penalties a cost of doing business), this approach has stimulated a large number of pilot projects and provided useful lessons for the industry and for policymakers. Today, insurance supervisors all over the world are expressing
strong interest in sharing experiences and understanding the dynamics of an enabling regulatory and policy environment. In response to this interest, the IAIS, in partnership with the Consultative Group to Assist the Poor, the International Labour Organization, the German Federal Ministry for Economic Cooperation and Development, and Finmark Trust, created the global “Access to Insurance Initiative” (
www.access-to-insurance.org) to foster capacity development and standard setting for insurance supervisors.
Key challenges for the development of microinsurance markets in rural areas
Much has been learned about developing effective and broad-based microinsurance markets in the past few years, but a number of challenges still face efforts to extend microinsurance in rural areas:
1. The strategy and policy challenge: A holistic approach to improving the financial system addresses the actors on three levels: it focuses simultaneously on framework conditions involving sector strategies, regulation, and supervision (macro level); service providers and public goods (meso level); and insurers, intermediaries, and customers (micro level). Rural development policies and financial sector development policies need to include microinsurance, and public resources need to be made available.
2. The underwriting challenge: Underwriting in rural areas faces higher risks and weaker infrastructure, which requires special attention from policymakers and development organizations. Community-based and mutual types of underwriters are more common in rural areas than in urban areas, and they often require institution-building support. International development cooperation agencies can help by supporting capacity building and investment.
3. The delivery challenge: Delivery channels that are close and easy to use and support rural delivery need to be strengthened. These channels can include cell-phone banking and retail shops. Community-based organizations play an important role in providing microinsurance in rural areas, and these organizations are often the risk carriers. This situation is suboptimal because of their limited reserves and management skills. Converting them from insurers to delivery channels could mitigate many of these problems.
4. The consumer challenge: Consumer-related challenges, such as affordability, insurance literacy, and consumer protection, need a special look. Affordability is more sensitive in rural areas than in urban areas because rural residents face higher cash-flow fluctuations in agriculture and generally have lower incomes. More investments are needed in insurance literacy. Consumer protection is a greater challenge in rural areas because the ombudsman and courts are often far away, and a claimant needs to finance travel costs.
5. The support structure challenge: Service providers in microinsurance are often not active in rural areas and not equipped to transfer the required know-how and systems to their clients, the intermediaries, and insurers. Training courses for rural staff of insurers are more costly to organize. Service providers often face higher costs to assess demand or establish risk data for remote areas and therefore neglect rural areas.
6. The agricultural insurance challenge: Although index insurance can potentially overcome many of the problems associated with traditional insurance, it requires improving the availability of high-quality weather data, creating awareness among farmers, achieving quick payouts, and dealing with basis risk due to conditions that might affect farmers but are not incorporated in the index (such as soil composition or uneven terrain).
Conclusion
Rural microinsurance products and their sales strategies require huge investments in product innovation, literacy work, and establishment of sound providers and intermediaries. In addition, regulatory dedication and innovation are required to spur the provision of rural microinsurance by motivating and formalizing rural providers and developing adequate customer protection. Microinsurance is an integral part of the financial sector and should be promoted as such, through an “access to finance strategy.” Rural finance and rural development policies should explicitly deal with microinsurance, including agricultural microinsurance. Coherence with other sector policies—such as agricultural development policy, social security policy, or consumer protection policy—results in more effective approaches. n
For further reading: German Federal Ministry for Economic Cooperation and Development (BMZ), Security at Little Cost: Microinsurance in Financial Systems Development (Bonn, 2009),
www.bmz.de/en/service/infothek/fach/konzepte/ konzept179.pdf; Lloyd’s and the Microinsurance Centre, Insurance in Developing Countries: Exploring Opportunities in Microinsurance (London and Appleton, WI, 2009); M. Mc- Cord and J. Roth, Agricultural Microinsurance: Global Prac- tices and Prospects (Appleton, WI: Microinsurance Centre, 2008),
www.microinsurancecentre.org/UI/DocAbstractDe- tails.aspx?DocID=660.
Martina Wiedmaier-Pfister (
wiedmaier-pfister@t-online.de) is a consultant on financial systems development for German Technical Cooperation (GTZ) and the German Federal Ministry for Economic Cooperation and Development (BMZ).Brigitte Klein (
Brigitte.Klein@gtz.de) heads the sector project Financial Systems Development on behalf of BMZ.
INTERNATIONAL FOOD POLICY
RESEARCH INSTITUTE Supported by the CGIAR
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sustainable solutions for ending hunger and poverty Supported by the CGIAR
www.worldbank.org Copyright © 2010 International Food Policy Research Institute and the World Bank. All rights reserved. Contact
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