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Microinsurance as a tool for Africa economic change

         Date: 2012-06-04

           Tag: Africa economic, Africa economic change

Summary: In Africa, approximately one billion people live in the continent of which an estimated 60 per cent are classified as poor. With a microinsurance market of approximately 700 million people, only 2.6…

In Africa, approximately one billion people live in the continent of which an estimated 60 per cent are classified as poor. With a microinsurance market of approximately 700 million people, only 2.6 per cent of the target population is currently using microinsurance products.

It was based on this that delegates at the just concluded Africa Insurance Organisation, AIO, in Sudan called for an improved and efficient microinsurance market in the continent.

Earthquakes, floods, drought, disease, crime all tend to hit the poor hardest.  Vulnerability and poverty go hand in hand, but microinsurance holds out the promise of breaking a part of the cycle that ties them together, he said.

He defined microinsurance to be the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved.

Also, the term “microinsurance” according to him typically refers to adapting insurance services mainly to clients with low income and no access to mainstream insurance services.

Giving a third definition of microinsurance, the representative of the International Cooperative and Mutual Insurance Federation added “Microinsurance is insurance that is accessed by low-income population, provided by a variety of different entities, but run in accordance with generally accepted insurance practices (which should include the Insurance Core Principles).”

He said that Cooperatives and Mutuals are the hidden giants of the world economy, adding that the largest 300 Cooperatives and Mutuals have a turnover of 1 trillion USD.

On the potentials for cooperatives to provide microinsurance, he said that they have history of organising the poor; have operated in the interest of members by the members; have the principle of trust; there is ownership and loyalty; peer pressure while any surplus is reinvested or redistributed.

According to him, the values in Cooperative and Mutual include self-help, self-responsibility, democracy, equality, equity, solidarity, honesty, openness, social responsibility as well as caring for others.

On whether Cooperative and Mutual insurance can show the way, he said that a cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.

Speaking on the topic, Microinsurance as stimulus for microfinance “Sudan view” Omer Elfarowg Ahmed listed the microinsurance challenges to include microfinance awareness; efficient risk management tools; lack of credit information; moral hazard; reinsurance capacity as well as insurance products expansion.

For Dr. Nureldym Mukhtar Osman Fageery who presented a paper on ‘Critical review of microinsurance in Sudan,’ he said that the Central Bank of Sudan started in cooperation with the Sudanese Insurance Union to introduce loan protection to cover the loss that a lending bank may incur upon the death, disability or sickness of a low- income borrowers or as a result of their assets loss especially standing crops damage, loss of animals and a house.

According to him, a co insurance pool was established by the members insurance companies in 2011 with objectives to promote the spread of innovative insurance policies in Sudan against loan linked risks in accordance with the terms of the Central Bank of Sudan; to reduce the cost of operation; to overcome the capacity problem of the market as well as to promote the exchange of information with similar pools.

However, the benefits of microinsurance, according to Ahmed are loan guarantee for finance providers; policy holders entitled to surplus; reduce insurance cost; policyholders benefits from loss prevention services; reduce economic waste; social responsibility; help poverty alleviation while also serving as a method of co-operation between participants.

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