Insuring the Low-income Market: Challenges and Solutions for Commercial Insurers

In many developing countries, commercial insurers are beginning to become interested in serving the low-income market by providing microinsurance. To do so, they have to overcome both operational and regulatory obstacles. Ironically, certain regulations actually give commercial insurers an advantage in serving the low-income market, by restricting competition from specialized microinsurance companies. However, this opportunity is unlikely to last indefinitely. Commercial insurers that are keen to reach out to new markets, such as the huge volume of low-income people in many countries, would be wise to move quickly to overcome key operational issues. In particular, insurers need to recognize that microinsurance is not just existing products with smaller insured sums, but rather requires a significantly different approach from conventional insurance. Key starting points include (a) improving the insurer’s familiarity with the preferences and behavior of poor persons, and (b) educating the market about insurance to create low-income consumers.