Insurance for underserved markets provides poor and low-income households with the means to protect themselves against the effects of risk. The role of insurance for underserved markets must be viewed alongside government provision of basic health services, employment, and education. The donor of development funding has become increasingly interested in supporting these initiatives and fostering the emergence of an insurance culture amongst the low-income sector globally. By managing risks and avoiding debt, it is hoped that over time those who have insurance for the underserved market will have a means of protecting the wealth they accumulate, generating more income, and getting a fair chance to lift themselves and their families out of poverty.
Insurance for underserved markets reaches low-income families because it tailors insurance to the needs most felt by people living in the developing world. For example, in South Africa, taxi insurance is being offered by Hollard. Most people don’t have cars and taxi minibusses are often the only way for people to get to work. The minibusses are notoriously overcrowded, sometimes poorly maintained, and are involved in many road accidents. Taxi insurance covers passenger liability along with other risks. This coverage is a relatively new and innovative product. Funeral insurance in Southern Africa is another example that has been around for many years. Other products may be designed specifically for a group of workers in a particular industry, for example, maternity coverage for female coir workers in a particular state in India.
Insurance for the underserved market can also be a tool to extend social protection in the context of providing security to populations in developing countries and contributing to poverty alleviation. Overall, strategies and mechanisms should ensure that insurance for the underserved market is not approached in isolation, thereby maximizing impact.
Last, insurance for underserved markets makes individuals and households more resilient and less vulnerable to risks; the indirect benefit is that wide coverage fosters socio-economics growth on a national level, which in turn, provides more economic opportunities and safety across the world.
ISSUE OF INSURANCE FOR UNDERSERVED MARKET
Need to review the regulatory framework as it affects insurance for an underserved market. Current prudential rules and regulations are designed primarily to ensure the safe and sound operation of traditional insurance providers. Its applicability and adequateness in safeguarding the interests of insurance for underserved market clients and in promoting the delivery of insurance for the underserved market will have to be assessed. The roles of commercial insurance entities; insurance brokers and agents; reinsurers and MBAs and insurance societies in the delivery of insurance for underserved market services will still have to be set and identified.
In emerging markets, a low percentage of the population uses conventional insurance services compared to developed jurisdictions. Since neither government schemes nor informal insurance schemes effectively cope with this gap, the majority of the population lacks access to insurance protection. The distribution frontier does not usually extend to the millions of economically active persons working in the formal and even less, in the informal economy. The consequences of insurance rationing for the economy as a whole might be significant: destruction of wealth; reduced productivity and economic growth; loss of investments in human resources through education; shortened productive life; overburdened state health care facilities.
The landscape of insurance for underserved market providers varies considerably in terms of the institutional nature and legal form. There is no “optimal type” of insurance for underserved market providers since each insurance market has different features. in some jurisdictions, there are many informal insurances for underserved market providers that should be licensed. In other jurisdictions, insurance companies have the potential and interest to serve low-income households. Finally, there is insurance for underserved market providers that may never become formal providers since they are relatively small, operate in remote areas, the regulatory risks are relatively low and the cost of formalization would force them out of the market.
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