Explain various examples of micro insurance products.

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a) Life insurance
Life insurance is typically offered as part of a microcredit package. It is also called credit-life. The credit-life contracts pay off any outstanding loans and provide the family with a fixed payout in the event of death. Most life microinsurance products have two fold benefits: first, the product generates profit for the holder and second, loans are paid off when clients die, sparing the difficulty of having to chase down relatives during a time of mourning.

b) Health Insurance
Within the microfinance clientele, Health insurance programs have been less successful. Part of the problem is that adverse selection is rampant in voluntary programs, a long-known problem. When programs are voluntary, less healthy households tend to be overrepresented among those seeking insurance; and insurers, bogged down by imperfect information, are unable to set prices appropriately for different clients. Jowett (2002), for example, shows that in a voluntary health insurance program in Vietnam, individuals self-reporting as being healthy were 41–55 percent less likely to purchase insurance saddling insurers with a client base that is less healthy than the population average.

c) Property Insurance
This is a cover against loss of property due to catastrophic circumstances. Microfinance clients pay a small an annual premium for coverage. Experiences show that property insurance can work, but there is also need of having adequate reserves and reinsurance policies in place before big catastrophes hit e.g. a tsunami can wipe out an entire village and destroy all businesses and houses owned by members of the same pool making it difficult for the insurance to cover for all damages.

d) Rainfall Insurance
Rainfall insurance - pilot programs are underway in Morocco, Kenya and India (implemented by the microlender BASIX). The idea of rainfall insurance is to avoid the moral hazard and adverse selection problems associated with crop insurance. The strategy is to abandon trying to insure against bad crop yields and instead to insure against bad weather directly. In a typical plan, tamperproof rain gauges are installed in a region; contracts are then written that guarantee payouts in the event of specific events of bad weather (e.g., lack of rainfall by a certain date or, in other cases, too much rainfall).

Kavungya answered the question on March 26, 2019 at 10:28

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Explain various examples of micro insurance products.

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