According to the International Association of Insurance Supervisors, inclusive insurance refers to all insurance products aimed at excluded or underserved markets, rather than just those aimed at the poor (microinsurance).  Therefore, inclusive insurance refers to solutions provided to low-income, lower middle-income emerging and rural populations as well as all those historically excluded from the benefit of the insurance.

Index-based inclusive insurance (also known as parametric insurance) is an innovative form of insurance that uses predetermined indexes (e.g. rainfall levels) that trigger an automatic payment to all insured clients within a geographic location. Policyholders are compensated according to the severity of the measured event compared to historical averages. This approach has helped make it commercially feasible to expand the reach of insurance policies to low-income individuals and emerging segments in areas that might once have been considered uninsurable.

Advances in technology and data analysis over the last several decades have made index-based insurance even more feasible. Satellite surveillance, for example, can be used to identify the amount of rainfall within one kilometer square area of land over a specific period of time. Such data are then compared against historical averages to design payout triggers. Policyholders are compensated according to the strength of the measured event against those triggers.

Unexpected shocks from natural hazards can affect vulnerable individuals and force them to cope with losses by selling valued assets, reducing their incomes or increasing their expenses. Inclusive insurance against natural disasters is a type of insurance product that helps underserved manage their risks against catastrophic perils trough more targeted policies than what traditional insurance can offer.

By defining payouts automatically based on reliable external data sources (e.g., USGS for earthquake data), index-based insurance expands the boundaries of traditional insurance products and keeps premium costs affordable for the underserved. Additionally, this type of coverage provides policyholders fast relief after a catastrophic event.

One challenge of index-based insurance is to find the perfect correlation between a policyholder’s loss and the specific data source on which the insurance product is based. It is possible that an individual could suffer losses but not receive a payout because the index does not reach the required threshold to trigger. For example, if a policy is set to pay out for an earthquake of magnitude 7 or above, but an earthquake only registers 6.9 magnitude, a client may experience damage that is not covered by the policy. On the other hand, individuals could also receive payments that surpass the value of their losses. While such imperfections cannot be eliminated entirely, a carefully designed index-based insurance product should maximize its value to the insured population, while still being commercially sustainable.

Index-based inclusive insurance is becoming more common in emerging countries, though it is still a relatively new approach. Even twenty years ago, such products would not have been feasible, but the improvement of satellite technology and data analysis has made this type of coverage possible. Relative to the overall global insurance market, index-based insurance represents a very small proportion of total policies.

MiCRO’s index-based natural hazard insurance products are triggered when predetermined levels for three different catastrophic events are reached: excessive rainfall, severe drought, and earthquakes. Payouts vary depending on the level of deviation of the index from its historical averages.

The coverage for all three events is based on data produced either by NASA, NOAA, USGS or select local sources.

MiCRO’s products are offered by local insurers and distributed by aggregators such as financial institutions offering productive loans, associations of growers, cooperatives, utilities and others.

MiCRO works with local partners, aggregators, such as banks, MFI, cooperatives, utilities, etc., who typically bundle our product with their products.

MiCRO’s clients typically have not used insurance products before, so MiCRO works closely with its local partners to provide information about how index-based insurance works, and how their insurance policy covers specific catastrophic events. In addition, MiCRO, working through government organizations, facilitates disaster risk reduction and preparedness training to its customers.