Strong storm with high winds blowing palm trees along a flooded coastal area, waves crashing onto the shore, and visibility obscured by fog or heavy rain to depict disasters and insurance challenges.

Microinsurance.

What is microinsurance?

The International Association of Insurance Supervisors defines microinsurance as “insurance coverage that is accessed by low-income population[s], provided by a variety of different entities, but run in accordance with generally accepted insurance practices.” 

Microinsurance has largely been implemented in developing and emerging economies and has been provided for many types of coverage such as life, health, crop, and livestock insurance. To be effective for the targeted consumer, microinsurance must be affordable, simple, accessible, and the delivery process must be efficient. Microinsurance products tend to have lower coverage limits, since they are targeted at customers that require lower absolute dollars of recovery assistance. Lower coverage limits also lead to lower premiums. These policies also typically are parametric to reduce transaction costs in claim settlement.

Can Parametric Microinsurance Improve the Financial Resilience of Low Income Households in the United States?

Parametric microinsurance has been used in many developing countries to improve the financial resilience of low-income households. This paper presents a review of the evidence for implementing parametric microinsurance in the U.S., with spillover lessons for other highly developed countries. It discusses the benefits and the challenges of microinsurance in a US context and explores 4 possible distribution models that could help overcome difficulties, with policies being provided: (1) by an aggregator, (2) through a mobile-based technology, (3) by linking to other products or retailers, or (4) through a public sector insurer.

Puerto Rico is the first jurisdiction in the U.S. to create a microinsurance market.

Puerto Rico adopted regulations that define microinsruance for catastrophic risks. The regulations define the product and note the intended use for those who could otherwise not afford any insurance coverage. The regulations, among other things, address non-traditional distribution channels, set limits on premiums, waive proof-of-loss, set guidelines for clear communication, and provide for certain tax exemptions.

Colorful street in Puerto Rico with pastel yellow, green, blue, and pink buildings, black motorcycle parked on cobblestone sidewalk, and clear blue sky along with discussion of microinsurance.

Since many households that could benefit from microinsurance have very little disposable income, these policies have at times been offered philanthropically around the world.

Raincoat did this in Puerto Rico through a partnership with Puerto Rico Children and Youth Rights Network.

Learn more about microinsurance around the world.