Micro-insurance for inclusive insurance in Tanzania
Insurance penetration in Tanzania, currently, stands at about 1.68 per cent of the gross domestic product (GDP). This low penetration could be blamed on various factors including poor saving culture, low levels of disposable income and negative perception towards insurance. However, to partly address the situation the microinsurance sector is gradually emerging.
The recent Microinsurance Landscape Survey conducted by the Financial Sector Deepening Trust (FSDT) showed that microinsurance products cover about 4.5 million people, 15 percent of the adult population. This cover is provided by 6 active insurance companies. The total gross written premiums (GWP) for all microinsurance products are about Sh20 billion, only 2 percent of the total GWP. Despite the understanding that this is the solution for low-income earners, evidently the microinsurance sector represents a very small proportion.
However, it is growing steadily as more and more insurers realize the business opportunities presented by more inclusive insurance products. While the business case for microinsurance has not been embraced by all market players, some insurers are taking the lead in testing new innovations in product design and distribution. Insurers have learned lessons and gained insights from their experience and are now developing more tailored insurance products.
Good news is, Tanzania is a pioneer in enabling a regulatory environment and is among the few countries in Africa to issue microinsurance guidelines. The Tanzania Insurance Regulatory Authority (TIRA) has been very supportive of microinsurance market development initiatives.
And so, to address penetration challenges, TIRA, with the support of key stakeholders have initiated aggressive consumer education and awareness campaigns across the country. The campaigns are aimed at increasing public awareness on the need and benefits of insurance.
Despite these initiatives, the issue of affordability of insurance by low-income earners, who constitute the largest segment of our society, remains a major challenge. Micro insurance, therefore, presents itself as the most appropriate mechanism the insurance industry could use in making insurance affordable to low-income earners.
What is Micro Insurance?
Micro insurance is the packaging of insurance for low-income earners. Micro insurance aims at enabling low-income earners to manage risks such as accident, illness, theft, death, fire and natural disasters such as flood and drought. microinsurance cover is provided in exchange for affordable insurance premium tailored to the needs, income and nature of risks faced by buyers.
Those targeted by micro insurance include the SME sector, farmers, farm workers and house help among others. This group lacks appropriate mechanisms to control risks allowing losses to drive them into helpless situations and abject poverty given that they cannot afford conventional insurance products. It is important to note that the majority of the Kenyan population falls within this category. TIRA has recognized this need and is keen on facilitating the insurance industry to develop affordable insurance products to serve the needs of this group.
How Micro Insurance Works?
Micro insurance works better with groups than with individuals because the cost of selling micro insurance to individuals is higher than that of selling to groups. Also, insurers find it cheaper to underwrite group risks compared to individual risks. This is the reason banks, microfinance institutions, investment groups, trade associations, social welfare groups, saccos, large corporations and the government take advantage of their existing group structures to buy cheap insurance. Some of these groups rarely go through insurance intermediaries when buying insurance for their staff/members.
The state of Micro Insurance in Tanzania
Although there are currently few active market players, the variety and types of risk coverage provided so far show that insurers are looking beyond simple credit life or life. The shift towards more valuable insurance such as life and health is good for Tanzania.
As indicated above, distribution of product cover signals poor outreach of current offerings in rural areas. For instance, crop insurance has less than 0.05% of coverage, yes, it is a global trend that within the spectrum of microinsurance products, agriculture and health are among the more complex. However, a few insurers recognise the value of providing cover for the agricultural risks faced by smallholder farmers. They have innovated in both product design and distribution to make access to agriculture insurance products possible. Health microinsurance is also undeveloped, and some of the challenges highlighted for this include the quality of health care providers, where more needs are done. And finally, it is good noting that some financial institutions facilitate the development of microinsurance through marketing, distribution as well as serving as premium collection and claims payment points. These include banks, microfinance institutions, mobile money transfer providers, saccos, etc.
Moremi Marwa is the chairman of Tanzania Insurance Regulatory Authority (TIRA) and the CEO of Prisons Corporation Sole
