Micro insurance refers to insurance which has been
engineered to be easily accessed by the population with low levels of income
and whose risk coverage is under the policy of micro insurance and the
management is based on the principles of insurance and its funding is from
premiums.
Micro insurance product
A micro insurance product is defined as:One which the authority which regulates micro insurance
approves, it should also have individuals who can trade in it as long as they
meet necessary requirements unbiasedly, its qualitative and quantitative
aspects must be impeccable and aligned to necessary supervision and regulation.
Micro insurance is meant to reduce the costs of insurance as
well as mitigate loss risks. This therefore makes it necessary to have a micro insurance
actuary who is defined as an individual who has relevant qualifications and is
allowed by IRA to act in that capacity of handling micro insurance companies and
their products.
Factors influencing micro insurance uptake in Kenya
These can be analyzed from variant angles namely demand and
supply. The demand side focuses on public’s demand for micro insurance products
while the supply side focusses on the insurance companies and regulatory
atmosphere.
Demand
On the demand side we focus on the major triggers as
indicated in the report by Center for Financial Regulation and Inclusion of
2011 written by Smith. These are: risk and claims experience as well as the
individuals’ perceptions. The Survey revealed that most people live in very
risky conditions characterized by famine, illnesses, property loss and drought.
To cope with these risks, about 25% of people rely on family members’
assistance, about 13% use savings while 10% take loans. Sadly, only 1% benefit
from insurance in coping with these risks. The perception by individuals
concerning micro insurance have played a significant role in influencing its
penetration as well as uptake. The report further revealed that mistrust of
insurance companies, inadequate engagement as well as lack of awareness of
insurance companies, lack of knowledge on relevant micro insurance products, religious
and cultural beliefs and lack of government incentives such tax reduction are
some of the perceptions affecting insurance demand. People have had different
experiences with claims where most complain of mis-sell of insurance products,
pathetic processes of settling claims as well as inconsistent monitoring of
claims.
Supply
Supply side on the other hand is affected by several
hindrances which include:
Lack of necessary capacity for underwriters to develop and
underwrite products as well as work on claims which are essential for accommodating
the special characteristics of the market.
High transaction as well as administrative costs by
insurance companies which is a constant struggle and the existing strains on
commissions make it almost impossible to incentivize dealers and agents to sell
Micro insurance mainly focusses on the informal sector which
is characterized by irregular incomes that make it difficult to receive regular
premiums.
Lack of knowledge or illiteracy on insurance products
creates negative perceptions which deters sales.
Lack of data on micro insurance deters most investors from
venturing into the business due to the fear of risk exposure.
Unreliable technology to facilitate cheap and efficient delivery
of insurance products and services makes it difficult to venture into micro
insurance.
