Microinsurance Demand & Market Prospects: Lao People's Democratic Republic

Lao People's Democratic Republic (PDR) is one of the least developed countries in Asia, ranking 135 (out of 177) on the Human Development Index (2002). Deutsche Gesellschaft fuer Technische Zuammenarbeit GmbH (GTZ), Allianz and UNDP assessed the potential of microinsurance in Lao PDR.

This paper describes the findings of the research, which aimed to:

• Understand and estimate demand for microinsurance in Lao PDR;
• Gauge the potential supply in terms of risk takers (regulated insurers, the government, and others) and various delivery channels;
• Suggest steps required to generate and service microinsurance potential.

The paper elucidates that in Lao PDR, the predominant form of risk management is self-insurance. People use savings, borrowings, or other means to hedge against the risks, primarily:

• Long-term illness;
• Livestock illness;
• Death of a breadwinner.

However, with just one insurer in Lao PDR and two individuals in the Bank of Lao overseeing insurance, even traditional insurance remains rudimentary in the region. The paper suggests three options to generate commercial microfinance:

• Insurers work with a Community Based Healthcare Initiative (CBHI) that accumulates premiums and links them to the insurer, who manages risks;
• Develop a mutual benefit association managed by professional insurers, but owned by the membership on a very large scale;
• The insurers develop a network of intermediaries to act as agents selling the microinsurance policies of the insurer.

The paper makes the following points in conclusion:

• The macro- and microfinancial activities are in a nascent stage;
• The infrastructure for microfinance is extremely weak, with potential intermediaries being limited in both number and capacity;
• The demand for microinsurance is weak to moderate;
• The Government should work with the insurance industry to develop a more receptive microinsurance market.