Following in the footsteps of microfinance, microinsurance schemes have grown substantially in the past five years to now reach an estimated 500 million policy holders.
Microinsurance aims to protect poor people in emerging nations against traditional risks such as accidents, illnesses, death in the family, natural disasters and property losses with premium payments tailored to their capacity to pay, according to the Microinsurance Innovation Facility of the International Labour Organization and the Munich Re Foundation.
The ILO's Microinsurance Innovation Facility was launched in 2008 with the support of a grant from the Bill & Melinda Gates Foundation.
"Since 2008, we have seen numerous innovations emerging to overcome the challenges of providing viable insurance services to more low-income people," says Craig Churchill, team leader of the ILO's Microinsurance Innovation Facility and chair of the Microinsurance Network.
Asia represents 80% of the microinsurance market, driven by demand in China and especially India where 60% of the market resides. Latin America accounts for 15% and Africa makes up 5%, notes a new edition of the microinsurance compendium released by the Facility and the Munich Re Foundation.
Asia is so central to microinsurance because of its large and dense populations, interest from public and private insurers and relevant distribution channels that include local and village bank branches, retailers and phone companies.
"What the developed world took several hundred years to accomplish cannot be replicated within a decade in the developing world, even given all the new technology and knowledge that is now available," said Dirk Reinhard, vice chairman of the Munich Re Foundation.
On the back of this success, commercial insurers are now entering the low-income market with at least 33 of the world's 50 largest commercial insurance companies now offering microinsurance, up from only seven in 2005.
The compendium warns that microinsurance is unlikely to break the cycle of poverty by itself, but is nonetheless valuable as a poverty alleviation tool because so much hardship is caused by the inability to recover from disasters and personal catastrophy.
When coupled with microfinance solutions and well targeted government and NGO support, microinsurance can play a critical role in many emerging nations, noted the compendium.