A lot of innovative ideas are often a reincarnation of an old concept, and microinsurance is no exception. In the late 19th century, insurance carriers began selling life insurance and burial policies door-to-door, primarily to factory workers. These policies had low premiums representing low sum assureds. This practice continued well into late 20th century. In fact I can remember when I was growing up, the “man from the Pru” coming round to collect the weekly premiums.
The term “microinsurance” originated in the mid 1990’s and is defined as insurance policies with low policy limits and consequently small premiums. Microinsurance is seen as a way to bring individuals out of poverty by providing compensation for the loss of critical life-sustaining elements (e.g., the loss of crops or livestock).
As expected, the growth and opportunities for microinsurance are predominately in the developing countries. But just as important, there are many traits of microinsurance that could benefit the developed countries, one of which is product design.
The simple product design and group-based pricing for microinsurance are easy to understand, especially with first-time buyers. Unfortunately many insurance companies have treated product design like new washing machines. New products are designed with many new features that most consumers are unlikely to ever use.
Let me give you a personal example of the complexity of today’s insurance products. Despite having worked in the insurance industry for a number of years, when I moved to America just over a decade ago, I was amazed at the number of different coverage and limits available. I had no idea how much coverage I should have for bodily injury or uninsured/underinsured motorist and I had to contact an agent to help me through this maze.
The moral behind this example is that today’s first time buyers are the Gen Y’s and Millennials. They are going to transact most of their business online without best advice or the need for agents to understand the appropriate level of coverage. Hence the insurance company that provides simplified insurance products to better serve this growing profitable customer segment could gain distinct competitive advantage.