MR Microinsurance_2012_03_29.indd - International Labour ...

22 Emerging issues
social and fi nancial impact by saying, “Microinsurance is a double bottom-line
business: it has an immediate social impact and, importantly from our perspective,
also has a long-term fi nancial impact. With microinsurance, we tap a huge
market of low-income households at the bottom of the economic pyramid”
(Allianz Group, 2011).
Insurers can fi nd easier ways to make money than microinsurance. Th e pull
of profi tability helps to keep them focused on effi ciency and market satisfaction,
while the CSR angle provides some space for experimentation. Chapter 19
explores this tension between being good corporate citizens and expanding market
share, while Box 1.3 highlights the reputation risk to which insurers are
exposed as they pursue BoP profi ts.
Box 1.3 Critique of the BoP approach
Th e fi rst volume of Protecting the poor applied Prahalad’s “bottom of the pyrapyra- mid” (BoP) business strategy to the insurance industry, suggesting that it might
be an eff ective means to provide cover to low-income markets that could benefi t
both the insured and the insurer. In the following years, Prahalad’s treatise has
also attracted some criticism, warranting a closer investigation.
Some critics challenge the motivations of corporations, and do not believe that
they really can achieve a double bottom-line result. Others are concerned that sellsell- ing consumer goods to the poor may do little to eradicate poverty, and could even
harm small businesses and threaten local jobs, for example if they buy from multi-
nationals instead of from local producers. Another line of questioning relates to the
target group, where perhaps Prahalad’s business model may apply to the upwardly
mobile poor poor and emerging consumers, but but not to the poorest of the poor. One of of
the most vocal critics, Aneel Karnani Karnani from from the University University of Michigan (2009),
believes believes the BoP approach approach does not recognize that poor people people often act against against
their own self-interests and and leads leads to to a romanticized view of BoP people people as value-
conscious consumers and resilient entrepreneurs (which) are not only false, false, but but
also harmful. harmful.
Th e assumption that all the poor need is an opportunity to improve their
livelihood is dangerous, according to Karnani, because it leads states to build too
few legal, regulatory, and social mechanisms mechanisms to protect the poor, as well as to to rely
too heavily on market solutions to to poverty. Th e e failure of this approach was evident
in the Andhra Andhra Pradesh microfi nance crisis, where where the lack of supervision supervision of lending
institutions enabled borrowers borrowers to take take multiple loans that they did not have have the the
capacity to understand or repay.
Criticism of the BoP approach, and the microfi nance crisis, certainly raise
alarm bells for microinsurance. Given the complex nature of insurance, it is diffi -
cult for consumers to understand, and they are vulnerable to mis-selling by agents