Microinsurance in the context of social protection : overcoming the barriers of economic growth and development

Abstract

Many South Africans, especially those with low incomes, remain excluded from the formal financial services and products market, ironically so, as these low-income households are more exposed to unforeseen economic shocks and being unable to recover from the unexpected financial impact thereof. Low-income households live in more risky environments and are vulnerable to numerous financial threats. They are also the least able to cope when a crisis present itself as they are the least likely to have any savings to deal with these crises. Vulnerability and poverty causes a downwards spiral of misfortune when reinforcing each other.

Microinsurance has been considered as the next revolution in addressing the vulnerability and risk of low-income households in developing countries such as South Africa. Huge investments have been made by development agencies in an attempt to break the circle of poverty by offering reliable protection to the poor.

A well-designed regulatory framework is important for the efficient and effective provision of microinsurance. Significant steps have been taken in an attempt to formalise the insurance sphere and to make provision for microinsurance. The question now arises, will microinsurance be a useful tool to include the low-income market in to the financial insurance industry and will microinsurance be profitable for insurers, taking in to consideration the cost and expenses of insurers due to over regulation and requirements by various legislation versus the applicable caps prescribed in the policy framework for microinsurance products?