It is almost two decades now that we have been hearing the term micro insurance. This often leads us to believe that it is something new which it’s actually not. Looking at the term closely it will be discovered that it has its roots within the financial services that are known as micro finance where it first appeared. Gradually, the term became more relevant in the social and economical context that finally converted the concept it into a full-fledged sector of insurance business. In order to understand the concept of micro insurance, it is important to first understand the basics of insurance and its origin.
Historic roots of micro insurance
It will not be wrong to say that the concept of insurance is as old as the hills. The basic spirit of insurance is to secure financial coverage for goods that are being transacted and are exposed to the risks of damage before the transaction has been completed. Similarly, insurance also applies to life by attaching a value to it and making arrangements for financial indemnification of the affected person’s family in case of loss of life. Many historical milestones are related to insurance.
- In China, the merchants and the investors shared the risk of goods that were lost during shipping to other countries. This system dates back to 3000 B.C.
- The Great Fire of London that happened in 1666 marked the launching of the first fire insurance company of the country.
- The system of insurance for maritime cargo was adapted around the same time of the Great Fire by the company named Llyod’s of London.
- Modern life insurance was mooted in the 17th century that was marked by the creation of the first mortality table.
Micro insurance defined
As told earlier, micro insurance is a concept that has been derived from micro finance. It is one of the financial services that can be considered as an addition to the well known processes of cashless payments, savings and credit. It was around 1999 that the term first came into prominence and ever since its definition has been evolving. There are some varied ways of explaining it.
A risk-transfer tool that helps low income groups not covered by social insurance schemes with low coverage limits and obviously entails low premium is a prevailing definition of the concept. It is aimed at protecting low income persons financially from the specific perils for which premium has to be paid. The premium is linked to the extent of coverage. Despite different schemes available from different service providers, it works in accordance to the laid down insurance practices.
A product for the developing world
Economic and social changes have compelled policy makers to extend more benefit to low income groups and can be considered as one of the reasons why micro insurance is fast gaining popularity. Currently, there are more than 500 million clients of micro insurance across the developing world.
India and West Africa top the list of clients of micro insurance as almost 70% of clients are from Asia only.