Academic journal article The Lahore Journal of Economics

Microinsurance in Pakistan: Progress, Problems, and Prospects

Academic journal article The Lahore Journal of Economics

Microinsurance in Pakistan: Progress, Problems, and Prospects

Article excerpt


Microinsurance in Pakistan is still in its nascent stages. More than half of the current microinsurance policies in effect in Pakistan are offered through the Benazir Income Support Program (BISP), with the remainder provided in conjunction with microcredit services offered by various microfinance institutions (MFIs), microfinance banks, nongovernment organizations, and rural support programs (RSPs). The policies offered by the microcredit sector are mainly credit-life policies, which cover loan balances in the event of the borrower's death. In addition, some lenders-principally the RSPs-offer small health insurance policies covering the hospitalization of the borrower and (sometimes) their spouse. As catastrophic health expenses and deaths in the family are among the most important economic stressors that households face, it makes sense that microinsurance should first make inroads in these areas.

It is difficult to say what impact microinsurance has had in Pakistan, since few rigorous evaluations have been undertaken to date. What we do know is that utilization has been low, explained by providers as limited client awareness of the benefits and coverage. In the short to medium term, microinsurance outreach can be expanded by offering health microinsurance (HMI) coverage to microcredit borrowers' entire households, and by offering HMI to all community members within an RSP, rather than only microloan borrowers and their spouses. Partnering with mobile phone operators for automated, digital payments can also significantly expand potential customer volume while reducing transaction costs. HMIs might also be combined with health savings accounts that households can use to pay for medications and outpatient services not covered by HMI plans. Provinces could also leverage the existing database of poverty scorecards implemented by BISP to channel partially government-subsidized microinsurance policies toward poor households just above the BISP threshold.

Keywords: Microinsurance, social insurance, poor, Pakistan.

JEL classification: G21.

1. Introduction: Defining Microinsurance

Broadly speaking, microinsurance is insurance for the poor. When it comes to defining the term more specifically or categorizing specific products such as "microinsurance", there is some lack of consensus. According to Churchill and McCord (2012), microinsurance can typically be characterized by: (i) the target group served (the poor, or more generally, those underserved by traditional insurance products); (ii) caps on the amount of coverage and premiums (low compared to traditional insurance products); (iii) the type of provider (such as "self-help groups" and other community-based organizations); and (iv) the distribution channel (including nongovernment organizations [NGOs], microfinance institutions [MFIs], and others). In addition, microinsurance often caters to the specific types of risk faced by the poor. It is often also characterized as being simpler to administer than traditional insurance.

2. Trends in Microinsurance Coverage

An estimated 500 million individuals are covered by microinsurance worldwide, 60 percent of who are in India (Churchill & McCord, 2012). In India, a combination of state-sponsored health insurance coverage and government mandates to the insurance sector to expand coverage to underserved segments of the population have been principally responsible for its large and rapidly growing share of the global microinsurance market. Over a period of just five years, India's RSBY program alone has enrolled 110 million individuals (Fan, 2013).

The microinsurance market in Pakistan has remained small. We estimate the number of policies in Pakistan to be nearly 7.4 million (see Table 1).1 This is likely an underestimate, since data are unavailable (or not included) on a number of ongoing pilots, small life insurance policies through the Pakistan Post, and some new programs such as life/disability microinsurance and mobile phone microinsurance schemes including Zong and Telenor. …

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