Microinsurance: From Protecting Low-Income Entities To More Personalized Insurance Policies

(Correction: Last paragraph has been edited to mention that Raj Ramanand is the CEO and Co-founder of Signifyd)

The insurance sector has been growing by leap and bounds. The concept of insurance is not new – it dates back to around 3,000 BC when Chinese merchants and their investors shared the risk of goods lost when shipping overseas.

The importance of insurance need not be put in words. However, high premiums make it difficult for low-income people to get access to it. This is where “Microinsurance” comes into play.

Micro Insurance Network says that the term "microinsurance" was first published around 1999 and its definition is continually evolving.

Advocates for International Development (A4ID) defines it as, “Microinsurance is an arrangement that offers financial protection to individuals and groups with a low-income against specific risks in exchange for premium payments. Microinsurance is run in accordance with generally accepted insurance practices but is designed to meet the needs of those who are otherwise unable to access mainstream insurance.”

The trend that is soon catching on is that instead of getting insurance for an entire entity like a car or health with a lengthy, lifetime policy, investors are seeking companies that focus on specific events such as a car ride or doctor’s appointment.

Sequoia Capital, the early backer of tech giants like Google and Amazon, recently took a step forward in microinsurance by investing in Lemonade, a startup focusing on bringing peer-to-peer insurance to the masses, TechCrunch reported. In yet another example, Metromile, backed by Felicis Ventures, lets drivers only pay for the coverage they require, instead of committing to a lengthy policy that is not well suited for them.

Microinsurance enables individuals/companies to “handpick” features that offer adequate financial protection for the shortest period of time.

With recent technological breakthroughs such as machine learning and access to real-time data from IoTs and APIs, fintech startups will be able to customize protection depending on unique factors and circumstances, and offer a more personalized microinsurance policy.

“Leveraging microinsurance, fintech startups will take the lead not just in rethinking this antiquated insurance system, but also creating completely new kinds of insurance that will meet the dynamic needs of millennials”, writes Raj Ramanand of CEO and Co-founder of Signifyd.