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Matters of Magnitude

Vulnerability and risk are key causes of persistent poverty. Insurance is, therefore, an area that can make a difference in supporting the development of a country and the growth of an economy. Despite these potential benefits, Zambia’s insurance penetration rate is as low as 1.3%, meaning that they are still far from reaching a point where the whole economy can benefit from the sector.

In countries such as Zambia, where the average income level is still low, the industry has to develop affordable products to protect low-income households and defend them against social and financial exclusion. Only under this protection will they be willing to continuously invest their earnings to create spillovers that lead to broader national economic growth. This is where microinsurance can play a determining role.

Microinsurance products are suited for low-income people living on between $1 and $4 per day, who need not only a cheaper but also a simpler product. Like regular insurance, microinsurance covers a range of products from health insurance to agriculture, theft, death, and fire.

One of the main issues with microinsurance is that if the product is too cheap, it may not be economically viable for the insurance companies. When insurance is too expensive, those most vulnerable to risk are not able to buy the product. To address this and other issues, Zambia has been implementing a coordinated approach to the development of microinsurance over the past few years. As Christabel M. Banda, Executive Director of the Insurers Association of Zambia (IAZ) told TBY, “this has been possible through a grouping called the Technical Advisory Group (TAG) on microinsurance, which was formed specifically to develop the microinsurance market in a coordinated manner.” This strategy is generating such impressive results that other countries are currently looking to emulate the model

Along with the challenge of dealing with high-risk clients, product delivery is another issue that insurance companies face. Most of the low-income households in Zambia are not in the urban areas, but rather in remote rural areas that are difficult to reach. In this case, new technologies have emerged as a strategy to reach remote customers, and are used by several Zambian insurance companies. Florence Kazhanje, Managing Director of Metropolitan Zambia told TBY that “there are exciting opportunities emerging to bring microinsurance products to the market by using mobile companies as aggregators.” Meanwhile, the CEO of the Phoenix Assurance Group in Zambia, Trevor Jengajenga, explained that his company is already collaborating with the telecoms sector to launch a mobile money payment system for their clients and a web-based insurance platform. The company Professional Insurance has also recently invested in new technologies to provide their clients with a better service and in the 2H2015, they launched a product in the microinsurance segment. Geoffrey Chirwa, Managing Director, explained to TBY that they have partnered with a payment platform called Kazang, which is available both in urban and rural areas in all 10 provinces of Zambia. Professional Insurance is now using Kazang as a vehicle to reach countless citizens currently excluded from the financial markets.

While the private sector is doing its part, the government is close behind. The impending Insurance Act will include, for the first time, specific regulation regarding microinsurance. Efforts from all the players in the economy are needed because, even though microinsurance offers one approach to mitigating risk and creating wealth, demand is still disappointingly low. As Paul Mosley, professor of Economics at the University of Sheffield explains that, “assessing the success of microinsurance programs in meeting the insurance needs of the poor [has been] somewhat supply-driven rather than driven by effective demand, especially from the poorest,” which suggests that insurance products which could benefit the poorest are still at a limited stage of development.

Microinsurance, still in its infancy, is destined to play a leading role in improving the living conditions of the lives of low-income households, mitigate risks, and improve their quality of life.

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