Johannesburg, 21 Nov 2008
Micro-insurance has a vital role to play in reducing poverty in Africa. That was the key message of Freda du Toit, director of SDT Financial Software Solutions, who presented a paper on the relevance of the micro-insurance industry for the continent at the African Insurance Organisation (AIO) Life Insurance Seminar held from 5 to 8 November in Livingstone, Zambia.
The AIO, established in 1972, is a non-governmental organisation headquartered in Cameroon. With 287 members from 50 countries in Africa, its main objectives are the promotion of inter-African co-operation and the development of a healthy insurance industry in Africa.
Du Toit`s presentation, entitled "Micro-insurance: A poverty reduction tool", focused on the advantages of protecting low-income societies and individuals against specific perils in exchange for regular premium payments.
"This is a means of social risk management that helps people to increase their ability to deal with risk that can otherwise severely impact their lives," says Du Toit.
Like regular insurance, micro-insurance may be offered for a wide variety of risks, including traditional life assurance, health (illness, injury, death) and property (damage or loss). Products are generally single-need, affordable, easily understood and serviced at convenient points close to the residence of customers.
Among the poverty alleviation benefits Du Toit listed were the creation of education opportunities, the opening up of funding for development and job creation, the management of shock impact, and protection against loss of income.
"All these factors can help to break the cycle of poverty that affects the lives of many African communities," Du Toit said. "Much like social security, micro-insurance offers a level of social protection that compensates people when they lose their income due to illness or injury, and provides them and their families with healthcare benefits. Of course, it should ideally complement government initiatives."
She noted that insurance providers must be prepared to deliver micro-insurance products though a variety of channels, including non-traditional and community-based ways, given the context in which they are operating. Clients in this market cannot afford to travel vast distances to pay premiums or initiate claims - service thus needs to be distributed via easily accessible partners to keep the products viable, Du Toit said.
"Insurers cannot adopt a one-size-fits-all approach as different people and countries have different needs. Some may be concerned with covering funeral expenses, while others want cover for their spouses. The point is to mitigate loss from insurable risks and to help build and protect assets."
Outlining several suggested principles for innovation in the micro-insurance industry, Du Toit noted that good product service was essential to help overcome the apprehension around upfront payment.
"It is also advisable to smooth the way forward by combining advanced technologies with existing infrastructure, having a high volume-low margin drive, encouraging collaborative distribution, and basically challenging conventional wisdom."
Effective marketing would require insurers to educate people about the benefits of micro-insurance and to increase their understanding of the protection it offers for the most vulnerable members of society.
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