Micro-Insurance

In a previous post micro-insurance was mentioned. I'm going to take a post to discuss what micro-insurance is, and the importance of it.

Micro-insurance is a term coined to describe insurance available to an atypical risk-pool with low premium, caps, and coverage limits. It is designed to help low-income people as well as businesses that are unable to obtain traditional insurance schemes.

Micro-insurance is defined by C. Churchill in his book Protecting the Poor: A Microinsurance Compendium as; "a financial arrangement to protect low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved...micro-insurance does not refer to: (i) the size of the risk-carrier; (ii) the scope of the risk; (iii) the delivery channel: it can be delivered through a variety of different channels, including small community-based schemes, credit unions or other types of microfinance institutions, but also by enormous multinational insurance companies, etc."

What that means is that the size of the person or company obtaining the insurance is irrelevant, while some companies are small and potentially informal, others are larger companies. The size of personal risk is not relevant either. The risks of the investor are in no way small to the investor. To sum it up, Churchill is saying that the insurance provided is on a smaller scale than what large commercial insurance corporation offer.