MR Microinsurance_2012_03_29.indd - International Labour ...

Pricing of microinsurance products
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By gathering data on the households’ income patterns, the project team can
gain a sense of the poverty level and the ATP. Th rough focus group discussions
(FGDs) or surveys, the project team can accumulate information on WTP and
the available alternatives to formal insurance. Respondents often overestimate
the amount they would be ready to spend on insurance and their input should be
considered with caution. Results are not transferable to other countries, or even
regions in the same country, due to attitude and cultural diff erences (see Box
21.2). Although collecting information on ATP and WTP is a rough exercise, it
helps the project team understand both the constraints on the premium structure
and “competition” for the proposed insurance product, and ensure that the
premium falls in a price range aff ordable and acceptable to the target population.
1
Box 21.2 Cultural barriers to WTP
Th e WTP is not just a factor of pure household economics, but also one of cul- cul-
tural orientation. orientation. In the Philippines, a one-week mourning period observed by
the family family is the way loved ones pay respect to the dead. Th e amount expended
on the the funeral and related events raises the the status of the the person who passed away.
Th erefore, erefore, Filipinos see see value in funeral insurance. On On the other hand, in India,
costs costs and customs are diff erent. Funeral Funeral ceremonies do not have the same social
importance as in the Philippines. So funeral insurance may not not be as relevant in
India, and the WTP for this type of product may be much lower. Furthermore,
in many cultures cultures there there is an aversion to buying insurance as it is believed that it
will bring on the event: appropriate communication can help overcome the
cultural barriers and promote promote take-up. take-up.
Th e constraints of ATP and WTP should not eclipse the need for adequate
cover. If low-income households do not see value in the product off ered, they
will not spend their hard-earned money on it. It is thus crucial to compare the
initial premium with the cover to determine whether the product off ers value for
money. Th e benefi t levels may need to be adjusted to ensure a balance between
aff ordability and coverage (see Box 21.3).
1 For further details on product design and demand research, see Wipf et al., 2006; Cohen and Sebstad,
2006.