ELEMENTS OF

MICROINSURANCE
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Institute of Accountancy Arusha
LECTURE 3:PROVIDERS AND
PRICING MICROINSURANCE
Bakari Jr | Banker | Writer | Contact 0684-000 - ***
Institute of Accountancy Arusha
PROVIDER OF MICROINSURANCE
Different types of insurers who are providing insurance to the lower
income people those are:
MFIs (NGO MFIs, licensed MFIs)
Member‐and community based organizations (Cooperatives, Mutual
Health Organizations)
Commercial insurers
Public insurers
There are very few specialized micro insurers (In other Countries)

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PRICING MICROINSURANCE
The primary objective of any pricing exercise is to ensure that premium
rates are sufficient to realize the scheme’s aims and meet its
obligations in the longrun, while maintaining equity among the
participants.
What is premium?

What is rate?

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PRICING MICROINSURANCE
Why is pricing micro-insurance different?
1. Client focus; client perspective must be at the centre of micro-insurance
activities to ensure acceptance of insurance as a risk-management tool. To
build demand, products have to be designed to match client needs in term of
risks to be covered, affordability and timing of premium, simple claims
procedures, minimal underwriting, and processes designed to enhance
accessibility to clients.
2. Scarce data; few micro-insurance providers or none at all. This limits available
industry experience data for pricing
3. Need for an affordable premium; Actuaries need to overcome their tendency
to overload premiums With high budget constraints and low purchasing power,
insurance is not the first consumable need for low-income households
therefore it stands to reason that micro-insurance premiums need to be low
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4. Limited access to dedicated pricing software; The use of common
pricing tools (such as MoSes and Prophet) is very rare in micro-
insurance. Pricing specialists will have to develop their own pricing
models mainly using tools such as Microsoft Excel and Access.
5. Importance of processes; the processes are part of the
microinsurance package. The way insurance is marketed and
distributed, the way that premiums are collected and so on, has
significant impact on premium adequacy.
6. Innovative distribution model Unlike traditional insurance, which
relies on brokers and agents for sales

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 LECTURE 4:DISTRIBUTORS
AND DELIVERY MECHANISM
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Institute of Accountancy Arusha
DISTRIBUTION CHANNELS
MFI
Retailer
Local retailers
Community based
Mobile delivery
Utility i.e Telephone. Water or electricity bills

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DELIVERY MECHANISM
Delivery costs should be low in order to keep cost low for the
product(s) to attract poor/low income earners and to incentives insurer
to venture in this segment, viewing it as a genuine market opportunity.
Following method of delivery are found to be helpful for delivering
micro-insurance service to the target clientele.
Mutual model.
Partner Agent Model
Community Service Model
Full service Model
Provider Model
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MUTUAL MODEL
Means the insurance company is owned and controlled by the Local
communities, member based organizations, NGOs, co-operative
created for the purpose of delivering insurance services, primarily to
the network and then to other market.
Local communities, member based organizations, NGOs, co-operative
organizations develop and distributes own products.
Advantages of the model are; Affinity, Accessibility, Affordability,
Investment in community and Ownership.

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Distribution of micro-insurance products in
Mutual model.

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PARTNER-AGENT MODEL
This model of delivery approved intermediary organization acting as
insurance agent and insurer utilize delivery to provide sales and basic
services to clients. There is no risk and limited administrative burden to
approved agent. This is mostly adopted in delivery of micro-insurance.
The partner agent model nevertheless poses some important
challenges such as The size of agent’s client base, how to motivate
front line staff, how to establish and maintain effective partnerships,
and the preference of some distributors to rely on their existing sales
force to sell insurance to their target market.

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The partner-agent model

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Advantages
• No capital requirements for agent.
• Few or no regulatory requirements for agent.
• Guaranteed income from commissions, or potential income/loss from
profit sharing
• Simplest, cheapest and quickest way to enter the low-income market
• Improves risk diversification by adding substantial numbers of
policyholders
• Positive impact on corporate social responsibility requirements and
relations with regulator.

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Disadvantages
• Need to negotiate with a third party for a product that meets clients’ and
the MFI’s needs
• Income often restricted to commissions; low risk, but also relatively low
reward
• Service standards may be in the hands of a third party
• Working with agents with limited knowledge of insurance
• Significant upfront effort in training MFI staff
• Reliant on the agent who could change its view of the insurer’s products or
services after the initial investment
• Service standards are in the hands of the agent leading to potential
reputation risk
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FULL SERVICE MODEL
This model insurer are responsible for all insurance related costs and
losses and they retain all profits because Insurer as provider is
responsible for all aspect of product design, sales, servicing and claim
assessment. This model is has facing with main challenge that Outreach
to poor through this model has been very limited.

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COMMUNITY BASED MODEL
This is community based insurance facility where NGO or federation of
group act as insurer but the coverage of risk remains with the insurer,
sum insured, design and pricing of products, adverse selection,
collection, claim verification and settlement are undertaken internally
by the insurer. Tanzania is implementing a nationwide system called the
Community Health Fund (CHF). Advantages may be, controlling moral
hazard and fraud, and can encourage renewals.
the insurance scheme is the organization
Challenges, there are low premium collection rates as well as high
drop-out rates. Combined with the small membership

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The community-based/mutual model

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PROVIDER MODEL
This model whereby service provider and the insurer are the same i.e.,
Hospital offer policies to individual or group. Instead of premium, the
services provider charge a membership fee to partly cover their costs.
Healthcare providers offer insurance with health services.

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The provider-driven model

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LECTURE 4:Microinsurance
products and services