- By Ujjwal Dhungana

Microinsurance can promote financial inclusion, reduce poverty and support sustainable development, creating a better future for the country.

Microinsurance is a financial service designed to meet the needs of low-income individuals and communities, helping them navigate financial challenges. This type of insurance is an emerging industry in Nepal. Microinsurance provides a pathway for people to enhance their resilience and achieve greater prosperity. By offering affordable and accessible coverage, it empowers underserved populations to manage risks and secure their finance from the risks that may arise in future.

Microinsurance provides protection against different types of risks, such as property damage, crop damage, health emergencies, unforeseen accidents, motor related risks and natural disasters. It offers affordable and accessible coverage to people who usually cannot afford traditional insurance. This helps communities survive unexpected problems and rebuild their lives afterward.

Over the past few years, insurance companies have been issuing microinsurance policies aimed at providing coverage for low-income individuals. The introduction of regulatory microinsurance primarily aims at educating communities at the grassroots level about the benefits of insurance in mitigating unforeseen risks. This initiative seeks to raise awareness and understanding of insurance as a vital tool for financial protection and stability among underserved populations.

Benefits Beyond Risk Coverage

Microinsurance is not just about reducing risk; it also fosters resilience and empowerment. By providing individuals with the tools to protect themselves and their assets, microinsurance boosts their confidence to pursue their goals as they know they have a safety net if something goes wrong. This type of insurance is especially beneficial for individuals launching new startups on a small scale. For these new entrepreneurs, microinsurance serves as a crucial financial backup, offering protection against potential risks and unforeseen challenges. By supporting such ventures, microinsurance plays a vital role in nurturing innovation and economic growth in emerging markets.

Empowering Local Community

Natural disasters like earthquakes, floods and landslides are common in Nepal. Microinsurance helps the local community by providing affordable coverage against such risks. It plays a crucial role in helping communities recover quickly after such disasters and reduces their vulnerability.

Microinsurance particularly benefits individual and vulnerable groups by giving them economic independence and decision-making power. It also promotes social cohesion and solidarity through mutual assistance and risk-sharing. By reducing perceived risks, it encourages entrepreneurship and innovation thereby enabling small business owners to pursue their ventures confidently.

Learning from Global Success

Our neighbouring countries and many other nations have shown how powerful micro insurance can be in varied sectors. Some examples are outlined below:

India: The "Weather Index-Based Crop Insurance Scheme" uses weather data to determine payouts, making the process more efficient and less costly. This innovation has significantly improved the resilience of farmers facing unpredictable weather patterns.

Bangladesh: Tailored microinsurance products cover health emergencies, livestock mortality and property damage thereby providing essential financial protection to low-income individuals. These products have helped many families recover from crises and avoid falling deeper into poverty.

Kenya: Community-based distribution channels and partnerships with local organisations have expanded access to insurance. Initiatives like the "Livestock Insurance Program" protect pastoralists against drought, ensuring the survival of their herds and livelihoods during adverse conditions.

The Philippines: Microinsurance has played a crucial role in disaster recovery, especially in the aftermath of typhoons and floods. Products like the "Microinsurance Catastrophe Risk Insurance Facility" provide quick payouts to affected individuals, helping them rebuild their lives more swiftly.

Mexico: The "Seguro Popular" program offers health insurance to millions of uninsured citizens, focusing on preventive care and reducing out-of-pocket expenses. This has improved access to healthcare and reduced the financial burden on low-income families.

Ghana: The introduction of microinsurance products, such as life and health insurance, has enhanced financial inclusion. The "MicroEnsure" initiative has enabled many people to access affordable insurance services thereby improving their overall financial security and well-being.

These examples show how microinsurance can be tailored to address specific risks and needs, fostering resilience and promoting economic stability among vulnerable populations. Other countries can also learn from these global successes and harness the potential of microinsurance to support their development goals and improve the lives of their citizens.

As Nepal moves forward on the path of development, microinsurance will be key to empowering communities, protecting livelihoods and fostering inclusive growth.

Opportunities in Nepal

While Nepal has made commendable progress in the development of microinsurance, there still is significant room for growth. To fully realise the potential of microinsurance, stakeholders need to address several critical challenges:

Increasing Awareness: Many individuals and communities are still unaware of the benefits and availability of microinsurance in Nepal. Enhanced educational initiatives and outreach programs are essential to raise awareness and understanding of how microinsurance can provide vital financial protection and stability.

Expanding Distribution Channels: The accessibility of microinsurance products is often restricted by limited distribution channels. By expanding partnerships with local organisations, community groups and leveraging mobile technology, the reach of microinsurance can be extended to remote and underserved areas thereby ensuring broader coverage.

Leveraging Technology: The underutilisation of technology presents a significant hurdle. Embracing digital solutions can streamline the administration and delivery of microinsurance products. Implementing digital platforms for enrollment, issuing insurance policies according to the need, premium payments, and claims processing can enhance efficiency, reduce costs and improve the overall customer experience.

Product Customisation: Tailoring microinsurance products to address the specific needs of Nepal's diverse population can increase their relevance and uptake. This includes developing policies that cover unique local risks such as natural disasters, agricultural losses property damage and health emergencies.

Strengthening Regulatory Frameworks: A robust regulatory environment can foster trust and encourage participation in microinsurance. Ensuring transparent practices, fair pricing and prompt claims settlements can enhance the credibility and appeal of microinsurance products.

Hassle Less Claim Procedure

Hassle-free claims processes are key to customer satisfaction in insurance all over the world. This efficiency is achieved through the automation of various institutions, such as traffic police, hospitals and other similar platforms, involved in the claims process. 

In Nepal, however, the claims process is largely manual which results in lengthy procedures that undermine trust in the industry. To address this, there is a need to collaborate with experts, international agencies and regulatory bodies to automate the claims process. This will make claims settlement seamless and efficient thereby boosting public confidence and encouraging more people to insure their properties.

By streamlining claims settlement, we can reduce government rebuilding costs after natural disasters and move towards more inclusive insurance coverage nationwide. Automation will transform Nepal's insurance industry, making it more efficient, trustworthy and beneficial for all stakeholders.

Looking Ahead

As Nepal moves forward on the path of development, microinsurance will be key to empowering communities, protecting livelihoods and fostering inclusive growth. By learning from successful global models and adopting innovative approaches, Nepal can harness the power of microinsurance to build a more resilient and prosperous future for all. Microinsurance has the potential to promote financial inclusion, reduce poverty and support sustainable development, creating a better future for the country. In the coming years, establishing trust in microinsurance will become a primary necessity, offering financial resilience and a seamless experience for all.

By focusing on these goals, Nepal can ensure that microinsurance not only supports individual and community well-being but also contributes to the broader development of the nation. Through collaboration and innovation, microinsurance will stand as a pillar of financial security and growth, driving Nepal towards a more inclusive and sustainable future. 

(Dhungana is CEO of Trust Micro Insurance Ltd)