Risk mitigating behaviour amongst low income consumers a South African short term micro insurance study

Abstract

The uptake of micro insurance products by low income consumers has been low, especially in the short term insurance industry. Many studies have identified a number of challenges that insurers are faced with when trying to penetrate this market. This study explores this problem from a different angle, where it investigates whether low income consumers already apply risk mitigating strategies to their circumstances, precluding them from purchasing short term micro insurance products. A qualitative design was followed, specifically to understand what the target population understood of insurance and whether they had their own existing methods of how to respond to risk events regarding their assets. 20 interviews were conducted with 10 from two townships namely Thembisa and Alexandra in the Guateng province of South Africa. The research found that risk mitigating behaviour did indeed exist amongst low income consumers; however this behaviour was driven by a prioritisation process. This process was developed considering low income consumers’ dilemmas of having limited resources but needing to mitigate the effect of what they would term as the most significant risk in their household. These risks would differ per household because of the different criteria that households would use to determine what is important, and this will lead to mitigating solutions that these consumers will engage in, thus resulting risk mitigating behaviour.