This paper aims to provide a clear presentation about micro financing and how it really impacts the lives of the poor or below average families as well as how it is effectively being implemented. This paper also provides some of the better examples of micro financing that is best for poor families, also focuses on finding proof as to how really micro financing becomes successful in helping the poor.
As people strive their best in finding better quality of life for them and their own families, there will always be challenges that will keep that striving no matter how you better do it. Insurance doe not only mean business, but it also provides security and assurance for the person who has the policy but most especially for their loved ones, which would not deserved not to be prepared, if in case of a sudden event happen. This paper will clearly discuss the importance of micro insurance as well as some example products. It will also provide some success stories which will serve as proof or success stories of micro insurance.
Two types of Insurance Products
Just like in the standard insurance products that are available in the market. Micro insurance products also have provided a wide variety of products that is available for the poor or below average families. For life and health lines, specifically in life insurance, there is also term and whole life insurance that is available, this is important for the families to ensure that in times that there will be unexpected death or disability of its head of the family who will be applying for the policy, the family will continue to live a peaceful and well assured life. Like in the case of life insurance, there are term and whole life insurance that is available. For term insurance, this is a type of insurance that provides assurance for both the policy owner and his family that during a certain period applied, 5, 10 or even 20 years, the policy owner is secured that whatever happens, death or disability during the period, the family will be given an assured amount. But in the case that the policy owner does not have any sudden event, meaning still alive, upon maturity, they can withdraw the amount with interest which will be used for good purpose, like using it for business, and at the same time have the option to continue paying for the insurance policy, since the period has ended. On the other hand, still part of life insurance, there is also what is called whole life insurance, unlike in term insurance, whole life does not have limit or period or maturity, this just gives the family of the insured policy owner a bigger amount of money in case of his death, meaning the whole benefit will be awarded to its beneficiary only until his death. Property/casualty type of insurance products, some of the most popular insurance that has benefited most families, particularly the poor are, agriculture insurance as well as property and asset insurance. For agriculture insurance, this is can be categorized as livestock insurance, crop insurance, weather insurance, it aims to lessen the susceptibility of low-income households faced by natural disasters like drought, flood or livestock affecting some natural calamities or epidemics that affects the whole town or place. Whereas the property and asset insurance, it covers against damage of property and damage and/or loss of assets in the event of the covered perils. This is important for low-income households, because it helps them secure whatever assets they would have; this includes house and other productive assets. Take for instance a family that only has a small store, which is the only source of income, or a small printing business, if these productive has been affected by unexpected calamity or sudden destruction, the family is assured of it. (Microinsurance Products, n.d.).
Factors for the successful design of an Insurance Product
An effective delivery (marketing) system
The insurance business truly has faced a lot of challenges in penetrating this market, mainly because the market needs to know exactly what are the benefits of having insurance and not just living without anything well planned. Finding the simple and yet very attractive words to say for these families is enough for them to be convinced that these product is not just for business in the insurance companies but mainly for the needed support and attention that is needed for families , most especially for the poor. But the marketing team is more faced by getting the right professionals to do it, like in Uganda, insurance companies have difficulty in teaching the needed sales and marketing skills and they even need to hire a business school professor to train their staff, since learning skills is highly necessary for the success of the project not only for the company but also for the people who needs it. That is why; most insurance companies have tied up with some of the biggest names in the business like one is AIG or American International Group, which has been a reliable partner in achieving the goal. With the marketing system that does not only focusing on merely ads, but more on “face to face” mode of marketing has made this micro insurance projects successful and more attractive marketing system for the business.
Reasonable pricing of the product
This is one of the important factors that are very much considered by insurance companies and the length of time to study has also been allocated, just for them to satisfy and have it easily be adoptable to this delicate market. That is why in most of the insurance products, the aim is simply to make it affordable and at the same time provide a convenient terms for its clients. Take for instance in Bangladesh, a one time charge of 5 taka for all its processing requirement and a monthly of just 10 taka is enough to attract members to join, with the number of benefits it provides like one product called emergency loans for its members, which is used in times of emergency for the families, that if the loan exceeds 1000 taka, the member will pay 5 taka for every thousand. This pricing scheme has even provided a control to it, like the members contribution is well in tact, that whenever there is emergency the fund is being used, and the dependents of members received insurance benefits from the interest only. In the side of livestock, for example cattle rearing borrowers have to pay Taka 125 (US$) as rent to the bank. Those who have borrowed for rearing calves for fattening, pay Taka 100 (US$). Out of the total amount of rent, 75% is paid as interest. A fee of 10% of the total rent, is paid as the contribution to the fund at the Zonal Level to cover the costs of additional extension services such as vaccination and lectures on livestock management. Another 10% is paid as a premium for the insurance. This only shows that micro insurance is not purely contribution type, but it also provides members some emergency and most importantly added support to productivity of small businesses and source of living for its members. (International Discussion Forum on Micro-Insurance, 2000).
Timely claim servicing practice
All of insurance products whether it is micro insurance or the regular ones. A timely claim depends on the period agreed in the policy, where the beneficiary can claim it. Take for instance, emergency loans; these are benefits given to members or beneficiaries of the members that in case of disaster or calamity, they will be given these claims or benefits in order for them to continue doing their business. Or in the case of death of the member, beneficiaries’ just need to provide the required documents plus the number of days for lead time by the company is where the time of claim really depends. In other words it is all depends on how the beneficiaries or the person who would ask for claim if all the required documents are completed and well accomplished plus the required lead time by the insurance company to process the request is where claims are being given.
A fair regulatory framework Reasonable underwriting rules to avoid moral hazards and adverse selection and
In order for the business to be trustworthy enough for its clients, most especially in this case where hard earned money are being put into by poor families. Fair regulatory and reasonable underwriting practices must also be applied. From the simple showing on how you attend their needs by carefully and continually studying the standard of living as well as market analysis would somehow help in providing not only best but also profitable business for the company. Fair regulatory that addresses factors such as poverty levels, social conditions, cash flows, education, etc. are just some of the relevant factor to be considered in order not to waste effort of providing just the service but the best service for these families.
Collection of statistical data in determination of rate
In order to support the importance of such information there should be better baseline through it like current statistics. Like figures such as, 4 billion of world population earning just $2 a day or even less, and just 2.5% of it are fortunate to have insurance and other meaningful figures is important for the company to be more successful in providing the business for its customers or clients, since it already somehow have a feel of what is happening in the market.
Low Cost Auto Insurance Program
The main objective or aim of this insurance product is to provide insurance for low income families who have vehicles. In California, getting this insurance policy is required and this was initiated because in the past years there were a lot of drivers that are not insured because the cost was beyond their reach, and that was also the reason why the Low Cost Auto Insurance program in California was established. Actually, there are requirements to be eligible in this insurance program, first must meet low income requirements 1 person = $25,525, 2 persons = $34,225, 4 persons = $51,625, 8 persons = $86,425), Meet the good driver standard (no more than one at-fault property damage only accident or more than one point for moving violation in the past three years), be at least 19 years old, have been continuously licensed to drive for the past three years, and have a vehicle valued at less than the $20,000. LCA program may not be fit for micro insurance obviously for a fact that not most families in these market has vehicle to drive, like in most times their products are being delivered through private delivery companies. (What is the California Low Cost Automobile Insurance Program (CCLA), n.d.).
What is your perception concerning micro insurance?
It is still worthwhile to pursue micro insurance for low incomes or poor families. It is a very good program that offers better life for poor families that no matter what happen they can be sure that if all of a sudden something happen to them and their source of income, there families will still continue to live their life and pursue on striving their best to live a simple and happy life. Like ion the case of an individual in India who were very suspicious about insurance, but until one time this Uplift India Association when his stone curving business has supported his business to grow and even making it stable now has made him realized that it really helps not only securing the lives of the people but also helping business to grow is some of the good benefits of having a micro insurance. (Katz, Rob, 2006).
In this paper it clearly shows that micro insurance can really provide beneficial results to below average families who are also vulnerable in their lives. With the benefits that it can bring to their loved ones in securing not only in time of their death or disability but as well as protecting their only source of income is definitely a welcome and an important aspect that can give the families a more secured life ahead and even can even change their lives forever if they make used of it for the better.
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“What is the California Low Cost Automobile Insurance Program (CCLA).” California Department of Insurance. n.d. < http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0010-automobile/lca/index.cfm>
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