There are five major models of insurance coverage for the poor:
1. The “Partner-Agent” model
In this model, a regulated insurance company underwrites and offers a microinsurance product, while provision or delivery of the product is done by delivery channels. Delivery channels can be a wide range of organisations. Microfinance institutions (MFIs) are the “traditional” delivery channel, and still the most common in many contexts, but a number of innovative alternatives have begun to emerge, including retailers (cash- and credit-based), utility and telecommunications companies, and third-party bill payment providers. Affinity groups such as religious institutions are also common in some contexts. All of these delivery channels have some existing tie to the low-income population, though the strength of that tie varies greatly and as a result so must the particular distribution arrangement.
The motivation for the partner-agent model is to leverage the strengths of both parties. The partnership allows the product to reach a segment of the population that would be difficult or impossible to access without a partner that has ties to the target market. Insurers typically lack the trust of the market, as well as an understanding of the clients. This hinders their ability to sell within this market. By partnering with organisations that already work with the low-income market, insurers can leverage the trust and access developed by the delivery channel and the knowledge of their clients that these channels bring. At the same time, the model places the risk-bearing function on a regulated insurance company, which is best equipped to manage it while allowing the delivery channels to focus on their core functions and better serve clients.
2. Mutuals, cooperatives, and other community-based models
In the mutual model, the insurer is owned by clients (members), who share in the benefits and costs of the insurance operations, often with members’ liability limited to their premium contributions. Cooperative insurers may, but need not, be owned by clients. These models have similar characteristics, including involvement of insurance clients in management, and often serve pre-existing groups of clients, such as borrowers from a credit and savings cooperative or MFI, or residents of a limited geographic area.
Lending organisations often offer borrower's insurance contracts that cover the balance of a loan to be paid back. They also often offer life insurance, and more rarely provide housing, funeral, invalidity, and accident policies. These products come in addition to mainstream credit and savings services.
In the countries of Sub-Saharan Africa, many mutualised health insurance schemes have also been created on the basis of a voluntary membership. In exchange for the premiums they send to a fund, policyholders are entitled to certain benefits. The community has an important role in designing and managing the programme.
3. The “all-in-one insurance” model
Different organisations - MFIs, insurance companies, etc. – can also sell their policies directly to the poor through agents who are paid by salary, sales commission, or both. In this model, the same entity (sometimes a licensed insurer and sometimes not) bears all costs and risks associated with the product and also performs all distribution and servicing functions.
4. The “franchise” model
In this model, the professional insurer franchises their license, assigning part of their capital to the licensee through a reinsurance treaty. The licensee is charged with designing the product, setting the prices, and handling the losses and gains.
5. The “supplier” model
This model implies that the insurer (whether formal or informal) provides all or part of the covered services, such as health care or funeral services. By providing a tool to finance use of the covered services, the supplier is able to increase access to, and demand for, these services. At the same time, as the supplier, it has control of the quality of the service provided, which is a crucial element in client satisfaction and retention. The major drawback of this model is the potential inadequacy of the service provider to bear the necessary risk or perform other functions required of an insurer, particularly if it is informal. In certain countries regulatory restrictions to this model exist.
- Alice Merry, Pranav Prashad & Tobias Hoffarth (2014). Microinsurance Distribution Channels: Insights for Insurers. Geneva: Microinsurance Innovation Facility.
- Jake Kendall, Graham Wright & Mireya Almazan (2013). New Sales and Distribution Models in Mobile Financial Services. Appleton: MicroInsurance Centre.
- Anja Smith, Herman Smit & Doubell Chamberlain (2011). Beyond Sales: New Frontier in Microinsurance Distribution – Lesson for the Next Wave of Microinsurance Distribution Innovation. Geneva: Microinsurance Innovation Facility.