Bridging the viability gap of microinsurance

Abstract

Microinsurance serves as a risk transfer mechanism for low-income populations. Yet, significant economic challenges impede insurers’ risk assessment and the pricing of risk; this affects the viability of microinsurance and subsequently the widening of the protection gap, leading to underserved populations. Insurers need to be aware of the macroeconomic factors, such as the low penetration rates and the informality of the sector, both of which complicate the risk assessment and pricing process. Also, insurers must consider supply-side challenges such as the lack of reliable data, business models and cost perspectives when developing suitable products. Demand-side barriers, notably income volatility, further exacerbate the vulnerability of such populations, thus making insurance solutions unviable for both the insurer and the microinsured. Addressing these multifaceted challenges, coupled with active efforts to reduce the gap through government subsidies and private–public partnerships (PPP), improved strategies, business models, regulation and awareness, is essential to achieving sustainable microinsurance solutions and overcoming these viability risks. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.