Strategies for Sustainability (Microinsurance in Focus No. 4)

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

View this Document (131 KB)   Email this Document

This note summarizes the main strategies to achieve sustainability in microinsurance programs.

The note states that sustainability for any real value product is a trade‐off between three competing objectives of coverage, costs,  and affordability. This note divides the main strategies to achieve sustainability in microinsurance programs into three categories (a) limit benefits, (b) focus on efficiency,  and (c) diversify income sources.

The note states that:

• Microinsurance programs can limit benefits by:
  • Offering basic benefits at the start;
  • Capping benefits;
  • Targeting certain benefits;
  • Focusing on big ticket items.
• The focus on efficiency translates into minimizing costs through more efficient and effective products, systems and processes.
• Some ways that microinsurers can do this are by using:
  • Group insurance;
  • Low-cost premium collection methods;
  • Inexpensive distribution systems;
  • Differentiation of requirements depending on the size of the insurance policy;
  • Buy of benefits in bulk.
• Microinsurers can diversify income sources through :
  • Cross-subsidization of premiums;
  • Capital funds;
  • Government funds.

In conclusion, the note states that:

• Microinsurance programs need to find better ways of combining selected strategies for each scheme;
• The key to sustainable microinsurance is to have good management that makes the right combination of strategies for their organizations;
• Microinsurance managers must have skilled employees, realistic product pricing, a sound business plan, timely and relevant management information;
• To be sustainable, microinsurance needs to be an independent activity with expertise, effective partnerships and many policyholders.