Product Design and Insurance Risk Management (Microinsurance in Focus No. 2)

Publication Date: Oct 2007
Published by: CGAP Working Group on Microinsurance
Document Type: Other (PDF)

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This note provides guidance on developing insurance products and services targeted at low-income markets.

This note states that in a low income market, insurers should ascertain the need and demand for insurance, determine the risks to be insured, and devise insurance risk management processes to ensure the product's viability.

The note offers the following tips to microinsurance providers:

• Product design should include:
  • Defining the target group;
  • Identifying insurable risks;
  • Determining key product features;
  • Establishing payment capabilities.
• Affordability and product design preferences should be investigated together to provide real value to clients.
• The household’s income level is a reliable means of assessing the payment capacity of the target population.
• When determining eligibility, it is important to consider:
  • Whether a product is designed for groups or individuals;
  • Whether it should be mandatory or voluntary;
  • The approach that must be to adopted for covering high-risk persons.
• Payment options could be short-term, long-term or renewable.
• Microinsurance benefits should be simple and the client should be able to claim the benefit easily.
• Coverage can be in the form of basket coverage or family coverage.
• Long-term clients who have not claimed any benefits could get value in terms of premium-back features, paid-up insurance, savings features, etc.
• Insurers should avoid elective participation, diverse target populations and numerous product choices.
• The amount of claims that must be processed should be controlled.

The note concludes by discussing the advantages of waiting periods and benefit schedules in avoiding the exclusion of high-risk clients.