JEFE DE TALLER

Shock events affecting poor households will reduce their assets and consumption, eliminate their source of income and lead to them falling into a poverty trap. There is a need for innovation in product design and services to serve appropriate programmes in term of coverage, accessibility and affordability in understanding supply and demand for microinsurance (Cohen et al., 2005).

In the past, low-income populations were ignored by the insurance industry, thus prevented from getting any protection; they faced many challenges to achieve this programme. Existing research recognizes the critical role played by microinsurance in increasing the level of protection among the poor population. The main challenge faced by microinsurance providers is to deliver suitable products to the target population; this is crucial in getting this insurance accepted by them.

One of the main obstacles concerns insurance knowledge and financial literacy (Clarke & Grenham, 2012; Black et al., 2013; Chummun & Bisschoff, 2014; Zimmerman & Magnoni, 2014). This problem has led to a low uptake of microinsurance because of the poor understanding of the benefits of this product.

This has been discussed and debated by many researchers, including Takahashi et al., (2016), Elabed & Carter (2015) and Ito & Kono (2010), who discuss the low rate of microinsurance uptake among the low-income population. The main disadvantage of this situation is that the goal of this programme, to protect the poor from the poverty trap, cannot be achieved. It has been reported that women comprise 70% of the world’s poor: only 3% of the low-income population in the world’s 100 poorest countries have microinsurance protection. It is important to have better products to respond to the needs of women, being more gender-sensitive, with the aim of reducing poverty and increasing profitability (Banthia et al., 2009).

To increase microinsurance take-up, Eskander et al. (2014) suggest enhancing the literacy rate among the poor, together with an awareness campaign and support from the main stakeholders. Despite the success of the microinsurance schemes introduced by various institutions, many fundamental problems and key questions remain unanswered, such as whether this scheme has been well delivered to the target population.

In addition, the scheme itself has problems with product design, as it does not match the demands of poor households. Generally, the poor and low-income population is less educated and has a low literacy rate. Thus, as the rules and regulations of the scheme are very complicated, they cannot be understood by the less fortunate.

Several studies have reported this problem, e.g. Chummun & Bisschoff (2014). These authors found that financial literacy is a major problem in South Africa, in addition to customers being hard to reach and low commission is paid to agents. This is similar to Zimmerman & Magnoni (2014) in terms of education and information challenges, but slightly different from those who have concluded that the challenges relate more to product and process design, regulation and financial dependability, capabilities and responsibilities. It is important to create a value proposition and trust through insurance knowledge among low-income people, therefore increasing financial inclusion within microinsurance products.

On these lines, Clarke & Grenham (2012) concluded that financial literacy within the target population is a really difficult situation. Microinsurance providers are more likely to convince potential subscribers to partake in microtakaful and build trust and awareness by providing accurate information. A simple approach is required to deliver information by explaining the procedures, benefits, claims process and documentation requirements to decrease the insurance literacy gap among the low-income population. Focusing on knowledge improvement in microinsurance will improve the client proposition and lower acquisition costs for clients (Matul et al., 2013).

In addition, microinsurance schemes today are driven more by supply than demand from the low-income population. Therefore, this will limit the effectiveness of the programme; it will need some innovations from microinsurance providers (Mosley, 2009). The problem of the mismatch between demand and supply has an indirect effect on acceptance among the target population. Moreover, the challenges faced in approaching the poor with a microinsurance programme are based on different countries’ regulations and the industry itself (Clarke & Grenham, 2012; Akter & Fatema, 2011).

It is challenging to sell disaster microinsurance at low cost. However, it can be affordable to the target population with support from every sector, especially government, by

approving affordable product design, an awareness campaign to increase knowledge, a different approach to product delivery, and financial assistance for the uninsured. On the other hand, in Bangladesh, the challenges to microinsurance supply have raised many issues; these include the microinsurance market structure being a stand-alone market with resulting low demand, poor governance and viability of the product. In addition, the current regulations in Bangladesh do not protect the client’s rights (Akter & Fatema, 2011). The regulation problem in the microinsurance market could be improved to avoid incentives for regulatory arbitrage by boosting financial literacy and awareness of microinsurance characteristics (Biener et al., 2014).

In addition, the research done by Jütting (2003) states that microinsurance still cannot reach the poor, even though microinsurance providers are effective in terms of affordability and their insurance models. It gives new insights to explore more areas and institutions providing products, especially what the real determinants of demand for microinsurance are among the low-income population. There are many reasons for the low take-up.

Sinha et al. (2007) demonstrated that problems of dropout from existing participants of microinsurance were because most participants that left were less educated and poorer. The dropout rate was also related to internal management who did not contact participants to encourage them to renew their programme. This author found that to reduce dropout rates, contacting all participants should be managed effectively and systematically to enhance the efficiency and sustainability of the scheme.

Poor risk-management tools in uncertainty events give a bad experience to the low- income population as they will fall back into poverty or become hard-core poor. For instance, in Belize, Grenada, Jamaica and St Lucia, low-income individuals manage extreme weather events using different approaches, including savings (36%), borrowing (12%), government assistance (9%) and doing nothing (0.1%) (Lashley & Warner, 2015). These phenomena, especially borrowing and doing nothing, will lead to other problems, such as loss of income source, loss of access to finance, depletion of assets, health problems and social isolation. One microinsurance type experienced problems with a community-based scheme regarding fraud. They faced difficulties in collecting regular payments, resulting in lack of progress of the programme. In addition, the low renewal

rate among participants creates an issue in community-based schemes that needs to be managed well to sustain the availability of the programme in the future (Ralf et al., 2006). Another challenge in offering microinsurance to the poor is educating the target market about the importance of having this risk protection in the future. They are always doubtful about the intangible benefits of paying insurance premiums that may never be claimed if no shock event happens. Furthermore, there are negative perceptions of insurance companies that affect microinsurance providers wishing to introduce these programmes to the target population (Ralf et al., 2006).