Micro insurance is the protection of low -income people against specific perils in exchange for regular
premium payments proportionate to the likelihood and cost of the risk involved. Low-income people can use
micro insurance, where it is available, as one of several tools (specifically designed for this market in terms
of premiums, terms, coverage, and delivery) to manage their risks.3
it is often assumed that a micro insurance policy is simply a low -premium insurance policy. This is
not so. There are a number of other important factors. Low-income clients often:
(a) Live in remote rural areas, requiring a different distribution channel to urban insurance products;
(b) Are often illiterate and unfamiliar with the concept of insurance, requiring new approaches to both
marketing and contracting
(c) Tend to face more risks than wealthier people do because they cannot afford the same defenses.
So, for example, on average they are more prone to illness because they do not eat as well, work
under hazardous conditions and do not have regular medical check -ups;
(d) Have little experience of dealing with formal financial institutions, with the exception of the National
Bank of Agriculture and Rural Development (NABARD) Linkage Banking programme;
(e) Often have higher policyholder transaction costs. Thus middle-class, urban, policyholder can send a
completed claims form to an insurance company with relative ease: a quick call to the insurance
company, receipt of the claims form by post, and then return of the form by post. For a low-income
policy holder, submitting a claims form may require an expensive trip lasting a day to the nearest
insurance office (thereby losing a day of work), obtaining a form and paying a typist to type up the
claim, sending in the claim, followed by a long trip back home. Aside from the real costs of doing
this, the low –income policyholder may be uncomfortable with the process; clerks and the other
officials are often haughty with such low-income clients and can make clients feel ill at ease.
(f) Designing micro insurance policies requires intensive work and is not simply a question of reducing
the price of existing insurance policies.