More than 2 billion people globally do not have access to any kind of social security cover. The poor and the economically marginalized communities all over the world do not have the wherewithal to go for big ticket insurance plans or schemes with high premiums. Consequently, they are deprived of the all-encompassive benefits of such insurance schemes. Microinsurance schemes in this respect, are better placed to offer the deprived a way out of their financial morass, as one can subscribe to a plan by investing a very small amount either on a daily, weekly or monthly basis.
So, microinsurance schemes offer a bulwark against financial uncertainty and risks confronted by the economically deprived. However, one should exercise enough caution before proceeding to invest in microinsurance schemes as there are many firms that enter the trade just to fleece the gullible poor people. There are many firms that lure the poor people into investing by promising them high and unrealistic returns.
The financial health of most of these firms is also highly suspect as they reinvest the investors’ funds in high-risk segments. Some of the hazards may jeopardize the viability of a microinsurance scheme, while other risks may impede the operability of the scheme as far as realising the desired objectives are concerned. Therefore, it goes without saying that the impetus of microinsurance companies is effective risk control and management strategies.
There are nearly 3 billion people that eke out an existence on just about $2 per day. When the sole breadwinner expires or becomes unemployed, all the dependants of his or her family are plunged into total financial insecurity. The microinsurance segment of the insurance sector offers numerous schemes with low premiums to the poor people who cannot go for conventional insurance plans that come with high premiums. In India, one can go for a microinsurance scheme that requires one to deposit a minimal sum of INR 50 every month. The total number of investors in such microinsurance plans all over the world has risen from 78 million in the year 2007 to almost 500 million at present.
Although with such a vast number of investors, the very idea of microinsurance is still relatively unknown to many in the marginalised sections of the society. This is because the firms have not taken the trouble to educate the targeted segments about the model of microinsurance.
If microinsurance companies have to win the trust and confidence of its present and potential investors, the plans have to be self-supportive with a vast network of policyholders. Microinsurance schemes should be able to furnish durable revenue models, which will be able to tap liquidity-intensive distributive channels transcending cultural or geographical hurdles. The microinsurance firms should aim at achieving economies of scale by leveraging investments in zones that at least ensure modest returns. The promoters of the firms should also see to it that the areas where they are investing the hard earned money of the policy holders are buffeted against bankruptcy or insolvency by the government. They should clearly discuss the risks associated with investments in microinsurance with their investors before investing.
It is great to see that in a country like India, there is someone like Hon'ble Prime Minister Shri Narendra Modi who has a vision to address multiple issues with one scheme. And hence, he introduced the Pradhan Mantri Jan Dhan Yojna. The person who opens a bank account gets a Rs. 30,000 life cover and Rs. 1,00,000 in accidential cover as part of this scheme. You can read more about this scheme here.
Last updated on: 14.04.2015