Barriers in implementing Micro Insurance. The self-employment sector in Sri Lanka

Master's Thesis, 2016

73 Pages, Grade: Distinction


Table of contents


List of Tables

List of Charts

List of Figures…

Chapter 01:Introduction of the study Introduction
1.1 Background of the study
1.2 Problem statement
1.3 Problem justification
1.4 Objectives of the Study
1.5 Significance of the study
1.6 Scope of the study

Chapter 02: Literature review
2.1 Introduction
2.2 Willingness to pay/buy for insurance
2.3 Poor accessibility for insurance by rural communities
2.4 Affordability
2.5 Consumer trust/ confidence on micro insurance
2.6 Conclusion

Chapter 03: Research Methodology
3.1 Introduction
3.2 Conceptual Framework.
3.3 Research Hypotheses
3.4 Population
3.5 Sample
3.6 Data Collection
3.7 Statistical methodology

Chapter 04: Data Presentation and Analysis
4.1 Profile of Respondents
4.2 Findings..
4.2.1. Analysis of Independent variable 01 - Willingness to pay/buy for insurance
4.2.2. Analysis of Independent variable 02 – Accessibility for insurance by rural community
4.2.3. Analysis of Independent variable 03 – Affordability
4.2.4. Analysis of Independent variable 04 – Consumer trust /Confidence in micro insurance

Chapter 05: Discussions of Findings and Interpretation
5.1 Interpretation and discussion of hypothesis
5.2. Variable 01 – Willingness to pay/buy for insurance
5.3 Variable 02 - Accessibility for insurance by rural communities
5.4 Variable 03 – Affordability…..
5.5 Variable 04 - Consumer trust/ confidence in micro insurance

Chapter 06: Conclusion
6.1 The Overall Study
6.2 Recommendations
6.3 Directions for future research




I would like to express my deepest gratitude to my supervisor Dr. Chalaka Subasinghe for guiding, directing and motivating me for successfully complete this research work. Indeed without his continuous supervision this thesis would not have been conceivable. In addition I would like to thank Dr. P.A. Kiriwandeniya; chairman of Sanasa Group of Companies for sharing valuable information and granting the permission to carry out this research work, with endless support. All in all I take this opportunity to express my warm thanks to everybody who lent their helping hands throughout the MBA project to make this a success.


The key objective of this study is to identify the main obstacles or variables those effect on implementation of micro insurance programs, with special attention to the self-employment sector in Sri Lanka. As we can see a large number of self-employees join with the community based organizations in rural areas. Therefore this study was carried out via SANASA cooperative societies based in rural communities in 16 districts all over the island. The network of SANASA cooperative societies is the largest cooperative network in rural areas representing more than 17% of Sri Lankan population inclusive oftheir family members.

According to the literature review of this study, many factors have been identified as the barriers for implementing micro insurance programs. All these factors have a great impact on successful implementation of micro insurance programs for lower income groups. Among these causes, willingness to pay/buy insurance, affordability, accessibility and consumer trust on insurance were selected as the key variables to carry out this study. Accordingly, an integration of these variables has been used to develop the conceptual framework which provides the guideline to develop the hypothesis for this study. In order to measure the strength of relationship among variables, eight hypotheses were made in par with “implementation of micro insurance” as the dependent variable and four independent variables those mentioned above. The effectiveness of implementation of micro insurance programs can or cannot be influenced by independent variables.

Simple Random sampling technique was used to identify the participants (respondents) for this study and the total number of respondents of the sample was 300; nevertheless data was collected only from 278 participants. Selected members were given with the questionnaire and a discussion took place to fill the questionnaires. Here the general data was collected and presented in line with profiles of respondents. Pearson correlation and liner regression analysis were carried out to measure the statements given in the hypothesis. Finally, it is revealed that the above four variables have a stronger relationship with the implementation of micro insurance programs in rural communities.

List of Tables

Table 01: Sample distribution among districts

Table 02: Behavior of male and female towards buying insurance

Table 03: Liner regression analysis between Implementation of micro insurance and willingness to pay/buy insurance

Table 04: Coefficients analysis between Implementation of micro insurance and willingness to pay/buy insurance

Table 05: Pearson correlation analyses between Implementation of micro insurance and willingness to pay/buy insurance

Table 06: Liner regression analysis between Implementation of micro insurance and Accessibility for insurance by rural community

Table 07: Coefficients analyses between Implementation of micro insurance and Accessibility for insurance by rural community

Table 08: Pearson correlation analysis between Implementation of micro insurance and Accessibility for insurance by rural community

Table 09: Liner regression analysis between Implementation of micro insurance and Affordability

Table 10: Coefficients analysis between Implementation of micro insurance and Affordability

Table 11: Correlation analysis between Implementation of micro insurance and Affordability

Table 12: Liner regression analysis between Implementation of micro insurance and Consumer trust/confidence in micro insurance

Table 13: Coefficients analysis between Implementation of micro insurance and consumer trust/confidence in micro insurance

Table 14: Pearson Correlation analysis for Implementation of micro insurance and consumer trust/confidence in micro insurance

Table 15: Summary of findings

List of Charts


Chart 01: Profile based on Gender analysis

Chart 02: Age categories of self-employers

Chart 03:; Percentage of people for Insurance possession

Chart 04: Geographical distribution of people who possess insurance covers

Chart 05: Current status of insured by age group

Chart 06: Reasons for not buying insurance

List of figures


Page number

Figure 01: Conceptual Framework

Figure 02: Categories of self-employment

Chapter one


Nowadays, the concept of Micro-Insurance is becoming more popular in third world countries and the requirement of financial services for poor has become universally acknowledged. Many people around the world struggling to feed their families with interrupted or terminated income due to poor physical conditions such as illness, disability, death and also they face broader adversities like flood, crop failures, fire and etc. All these are known as risk factors those seriously affect, generating their household income (Midgley and Hosaka, 2011). In order to provide a formal risk protection scheme, and then to mitigate poor household`s fatalities, Micro Finance Institutions (MFIs) came in to play and the idea of Micro Insurance popped up.

Micro Insurance is a tool to assist poor people to manage their risks efficiently (Churchill, 2006).There are several ways of defining micro insurance in different aspects, however, it is mostly engaged in managing risks pertaining to poor or low income generating people, against special perils. This exchange is proportionated with the premium payment, likelihood and cost of the risk involved (Cohen and Sebstad, 2005).

Micro insurance will become more effective when it meets with four mainstays. First, the product has to be delivered to the target customer group at an affordable price. Second, the service needs to make sure long term sustainability. Third, the scheme has to address national policies of the country, designed on social protection and financial inclusion. Finally micro insurance must influence technology to enhance outreach, lesser distribution costs, simplified processes and improved quality and consistency of delivery (Churchill, 2006).Micro insurance is a scheme which accumulates funds with small amounts of premiums collected from low income earners in given time intervals and it will be utilized to support the affected people within the same group who have contributed for the fund as insurance premiums and also payout is proportionated to the premium paid (Ngerebo and Nwite, 2012).For the purpose of this study, author outlines micro insurance as a risk mitigation tool for the lower income earners, with affordable premium rate, simple and clear to the insured and arranged within the scope of local regulatory frame work.

1.1 Background of the study

In the rural community, people have built up informal community based organizationssuch as death donation societies to collectively bear funeral expenses and to provide welfare facilities, and these are very similar to the micro insurance theory. When considering the operations of micro insurance in grassroots level; we could observe that lower income groups play a significant role. Reason why this study is focused on self-employment appears that most self-employments are to support and uplift the people from lower income groups. Accordingly, this study is mainly focused on analyzing the prevailing challenges for implementing micro insurance schemes for self-employers and their family members. If micro and small enterprises have not obtained an insurance facility, their lives run at a risk, when they face tragic events in their business environment, or family life. Access to insurance as a formal tool of risk management is effective to minimize the loss of their day to day business operations. In terms of risk resistance, most commercial insurers have bypassed the self-employers as this sector is comprised of many barriers when implementing micro insurance schemes.

1.2 Problem statement

What are the barriers in implementing micro insurance schemes effectively to mitigate the risks faced by self-employed folks and their families?;

1.3 Problem justification

Even though, the micro insurance scheme is originally designed for low income group of people, it can be seen that there are emerging markets of micro insurance in self-employment sector. During last two decades, there was a rapid development of micro insurance institutes and approaches in many developing countries so as to mitigate the risk of individuals and businesses operated in the bottom of the economic pyramid (Brauet al., 2011). Poverty sector including self-employment segment, provides employment opportunities for poor people, in order to satisfy their needs while earning an income (Vandenberg, 2006). However it is observed that there are some barriers for implementing micro insurance schemes for the self-employment sector because unlike Small and Medium Enterprises (SME) these initiatives are not well established in the market. The insurance market is virtually absent in providing micro insurance schemes for poor households and for informal workers (Self-Employers). Therefore informal insurances are promoted to fill the gap (Llanto, 2007). A study carried out by the Churchill found that informal risk-coping measures are not sufficient to cover the expected return of the insurer as a risk protection since lower income earners and informal workers cover only the small part of losses then attempt is not successful to protect lower income earners and informal workers against a series of perils (Balkenhol and Churchill 2002).;

1.4 Objectives of the study

Main Objective

The key Objective of this study is to realize the facts that effect the enhancement of outreach of micro insurance services available for the Self-employment sector in Sri Lanka.

Secondary Objectives

- Identify the reasons for not buying insurance policies by informal workers of self-employment sector.
- Identify key issues in customer`s perspective for implementing micro insurance aimed at self-employment sector in Sri Lanka.
- Analyze the reasons for discontinuing insurance policies by the self-employment sector.;

1.5 Significance of the study

As per the information given by International Mutual Cooperative Insurance Federation, It is discovered that 24% of world insurance market represents the mutual and micro insurance sector (Picard, 2009).In Sri Lankan Context, the contribution to the GDP by Insurance sector was only 1.09% and also simply 12% of population has obtained an insurance cover (IBSL, 2013). Therefore it can be said that the insurance industry in Sri Lanka has a virgin market as yet in rural and semi urban areas where there are good opportunities to encourage micro insurance extensively. Therefore, a middle income country like Sri Lanka should positively act towards implementing micro insurance programs for poor communities. Unlike other countries, Sri Lanka has no separate regulatory framework for micro insurance sector. Thus inadequate supports are given to the institutions those are promoting this industry with in the country. In this context, the study is more significant for micro insurance practitioners in Sri Lanka and around the world in order to contribute their thoughtfulness towards risk mitigation of self-employment sector as most of lower income earners are involved in self-employment segment. However this fragment is neglected and resources available for them are very limited. Accordingly there are possibilities of experiencing financial disruptions when unexpected catastrophic events emerge (Roth et al., 2007).Thus this study is more significant for regulators, donors, insurers and micro insurance practitioners for their future applications.

1.6 Scope of the Study

Scope of this study is lined up with the learning outcomes of identifying main issues and reasons for limited access to the insurance by self –employers.; All these analyses were carried out through a survey to collect data from self-employers. A group comprised of 278 people was interviewed using a structured questionnaire.; Also different geographical regions targeting the island wide coverage has been selected with the special attention of rural communities in Sri Lanka. People were selected in two categories, as insurance policy holders and non-policy holders respectively.;

Chapter two

2. Literature review

2.1 Introduction

When exploring literature, we could see that there are many researches and studies have been carried out on micro insurance sector and this shows the substantial interest prevailing among global researchers and economists regarding this area of study. However, these micro insurance studies were given a limited attention to the self-employment sector. Although micro insurance studies are focused on poor households, self-employment sector cannot be identified as a separate unit from the poor segment since self-employees have emerged from low income group itself. Some literatures have considered poor house hold and informal workers (self-employment) together in their studies of micro insurance sector. Most researchers have chosen this topic to investigate in upholding micro insurance for lower income earners including self-employment.;

2.2. Willingness to pay/buy for insurance

Willingness to buy is always reflected the willingness to pay which is maximum price a buyer is willing to pay for given quantity. Attitudes of consumer towards fake products, perceptions of social consequences and innovations have been influenced the consumer`s willingness to buy fake products (Vida, 2007).Financial Purchasing behavior of the consumer can be determined through consumer attitude and the product perception (Huber and Schlager, 2011). Consumer’s decision making can be divided in to three metal components such as KAI (Knowledge, attitude, intension), those are analyzing all the information including commercial and non-commercial and finally it is influenced consumer’s willingness to pay. It is revealed that the willingness to buy is the threshold for emerging micro insurance markets. The real willingness to buy can be observed through the behavior of consumer in their purchasing process (Xia and Zeng 2006).

Further it is exposed that a higher consumer willingness can be obtained by introducing an insurance benefit package in the enrollment process and this may impact on getting a higher consumer responsiveness towards micro insurance (Dror, and Koren, 2007).In terms of “customer`s perspective”; product pricing and innovative products play a significant role in marketing management in order to enhance the customer`s willingness to buy. And also a valid estimate of willingness to buy is required from potential customers to develop an appropriate pricing strategy for the Insurer. This estimate can be utilized so as to get the feedback on responsiveness about the changes of prices in the market and also formulating the demand function (Breidert and et al, 2006).;

As for long term insurance covers that is life insurance, a similar pattern of willingness to buy can be observed regardless of the gender of the consumer and the willingness increases gradually depending on their value of assets. However it is recognized that both men and women in rural communities have a least willingness to pay for insurance. Most vulnerable consumers are interested in spending on long term insurance policies, thus long-term care utilizations required for a proper analysis with a comprehensive data base. The behavior of men and women towards the negative willingness to pay can be observed in the bottom half of the income pyramids in a country. A strong negative response on willingness to pay can be seen among women where the distribution despite prices is lower than actuarially fair as it was loaded negatively. It is suggested to consider this situation seriously at least for the demand of women for private long-term care insurance. However the consumers represent high risk segment are willing to pay a higher premium above actuarially fair price. And also other factor for negative willingness to pay is structure/contents of private insurance contact (Jeffrey,;Amy, 2004).

Willingness to accept is an additional psychological aspect to be taken in to consideration along with the willingness to pay and willingness to buy. Experiments revealed that the willingness to accept (WTA) considerably exceeds the willingness to pay in a typical market and this situation can be perceived in the market where the consumption goods that are not repeatedly bought and sold. Gary Mclelland and William schulze have conducted several experiments on “either submit bids to buy (WTP) or offers to sell (WTA) for either a lottery ticket or an insurance policy”. This experiment provides signaling, whether they would sell the lottery with a loss of full value or they will keep it without selling at any price. In terms of insurance, consumers are taking decisions on willingness to accept by looking at the expected value of the insurance policy. A study carried out by McClelland, Schulze and Coursey revealed that willingness to accept is equal to willingness to pay at an event where customers bid for lottery ticket. However when it is applied for bidding insurance against a loss, results indicates consumer’s willingness to accept exceeding willingness to pay (Hoffman and Spitzer1993).

Customers are not prepared to pay for all benefits given through the insurance policy. Accordingly willingness to pay may drive unsuccessful directions in situations where the welfare facilities are also bundled with the insurance. In some cases, customers might be willing to pay for the insurance with inappropriate welfare bundles. Consumers typically select insurance policies by depending on their “affective forecasting” which sometimes leads them to choose inappropriate bundles. Occasionally consumers overvalue the impact of welfare component of losses and gains (Cass, 2007).When discuss about quality of life measures majority of them are correlated with the willingness to pay for insurance. A study conducted by Blumenschein and in 2001, identified that the willingness to pay for cure of asthma is related to both objective and subjective due to severity of disease. When analyzing willingness to pay from householder`s view point, marginal implicit prices can be interpreted as marginal willingness to pay (Bin, Kruse, and Landry, 2008). Additionally the experiment carried out by Cummings and from 1995 to 1997, suggested that when comparing hypothetical and real willingness to pay, hypothetical responses sometimes significantly overvalue the willingness to pay. (Blumenschein and et al, 2001). Willingness to pay can be stated as the only one of three valuation methods that can be used to appraise key benefits (Mitchell and Carson, 1981).

Usually the Insurance premium is higher due to border coverage provided for insurance clients. Accordingly, people from lower income group face the problem of paying premium (willingness to pay) continuously. ;Then insurer should take precautions or actions in line with smoothing the financial sock of risks, such as medical emergencies and healthcare, faced by lower income group. To overcome this situation, three solutions are proposed. First, the premium should not be so high. Second, the insurance cover is considerably comprehensive to cover the risks faced by lower income earners. Third, to reduce financial stress of the client, there must be a proper system introduced for premium collection and methods (McCord, 2001).;

In some contexts, it is analyzed that the willingness to pay for insurance to avoid kind of risk is equal to the discount or price decrease of these valuable factor due to such risk. For instance, properties are located in flood prone areas, owner of those properties are willing to pay for insurance to mitigate that risk reflects the households’ willingness to pay to avoid such risks (Bin, Kruse, and Landry, 2008).

Consumer awareness about the benefits and packages available with insurance should be a significant factor and it is a factor which will be influenced the increasing of willingness to pay for insurance (Onwujekwe, et. al, 2009)

2.2 Accessibility for insurance by rural communities

Most of the microfinance institutes work with low income earners in rural communities, have identified that their clients not only need credit facilities but also they look for another facilities such as insurance facilities (Llanto, 2007). Microfinance institutions can provide valuable connections to micro insurers in providing micro insurance facilities in Sri Lanka (Wiedmaier-Pfister, Wohlner, 2004).

It is acknowledged that there is enough room to work out the risk and insurance to develop new innovations those provide a better access to poor (Morduch, 2006). When considering the risk of poor health conditions, people seek another alternative to mitigate this risk when the public health services become underserving. Therefore, poor households rely largely on self – insurance or informal group based risk management mechanisms where they have easy access. To increase the outreach of micro insurance for low income households, micro insurance needs to be addressing the areas of accessibility, coverage, period of coverage and affordability (Cohen, and Sebstad. 2005).

Since the inception of its operations, Micro insurance service unit is located at a very close proximity to the client communities because the rural population is dislike to travel from their communities to insurance service centers located far away (Dror, and Jacquier., 1999).

The way that micro insurance products are delivered to lower income groups is a key determinant that micro insurance being different from other insurance arrangements (Gitau. 2013).Generally micro insurance products are being delivered via Micro Finance Institutions (MIFs), other governmental and non-governmental institutions; execute their business activities in rural communities. Although the premium charge for micro insurance products prevails at a lower level, further arrangements need to be prepared to minimize the distribution cost as well (Njugunaand Arunga2012).

In order to improve the accessibility by rural community, certain micro insurance schemes have developed mechanisms that have less entry barriers for the lower income groups (Ahujaand Jütting 2004). However it is being noticed that the distribution channel is a hub in terms of improvement of micro insurance around the world. Nowadays, requirement of suitable distribution channels has become more significant so as to expand the accessibility for insurance in the rural mass (Marco, 2015). Micro insurance programs can be undertaken as part of social protection functions which involves redistribution internal cross-subsidies or linking public subsidies to their members (Jacquier, et al., 2006).

In a context of rural communities, the accessibility to the health care by poor families is very limited since they have uneven and insufficient cash flows. Hence they are seeking alternative methods such as informal self-insurance and informal group-based systems those have easy access to poor community to reduce their health hazards. These approaches have disadvantages because those are built up with groups consisting exact poor category and also there the women participation is very high. Establishment of these informal community groups is highly existed in the areas where the care given by private and government institutions is least. Another factor influencing accessibility for the micro insurance is the availability of transportation facilities in rural communities. The client interface of insurer can be mentioned as another dimension which influences the accessibility of rural communities. Thus many people experience delaying of their claim process. Complex and numerous paper works involved in insurance also bring a hassle and then create poor accessibility for micro insurance. However the personal savings and emergency lendings are the instant solutions to mitigate the risk faced by poor (Cohen, and Sebstad, 2005).

The impact of social and cultural factors of indigent also has influenced the demand for micro insurance. For instance, some cultural believes tend to accept the ill health as a consequence of fate by refusing medicines and people follow religious leaders for treatments.(Wiesmann and Jütting, 2000).

Most Insurance companies have neglected the poorest communities in the society when implementing insurance programs, therefore micro insurance schemes should be developed to increase their accessibility. However those programs should consist with lower entrance barriers and more flexibility in entire process from enrolment to claim settlement. A study conducted by Ahuja and Jutting (2004), explains how the demand for insurance affected by lack of access to credit facilities in the contexts of uneven combination of future and present income levels. Since the poor are facing survival constrains they have to take a decision on purchasing insurance for themselves. Access to credit facilities may be weaken the survival constrain of the poor. If poor can access to credit facilities, they are advised to get health insurance and this situation reflects that there is a demand for health insurance for poor.; In fact that people are willing to spend more money for securing their health through an insurance policy rather than spending their own money at a time of illness. An analysis conducted by Jütting, in 2004, revealed that the mutual financing through paying advances and sharing risks have reduced the financial constrains to health care and also risk pooling and prepayment can also be developed for the financial protection of poorest (Ahuja and Jütting 2004).

Populous countries like China, have implemented the community based health insurance schemes for larger communities to overcome the barriers in accessibility when providing insurance services to wider communities (Wang, Yip, Zhang, Wang, and Hsiao, 2005).By encouraging many insurers to follow strong policy conditions of underwriting and age rating, could be destructive for accessibility to the insurance by poor people. Several other options such as reducing administration cost, managing to reduce the agent commissions and direct communication via e-mails might be appropriate to reduce the premium and those guides to make insurance products more affordable and accessible to customer (Lutzky, Sevak, and Claxton, 1997).

Research conducted by Baker, Shapiro and Schur in 2000, concluded that the major barrier to have health care (medical care) is lack of insurance facilities among poor and this has become ;a serious health problem (Baker, Shapiro, and; Schur, 2000).

2.3 Affordability

Majority of micro insurance clients can be found among low income earners who are in the Bottom Of Pyramid (BOP),and their income get fluctuated frequently and also their income flow get badly affects when there are calamitous (Cohen, and Sebstad., 2005).; Micro insurance product developers are encouraged to design micro insurance products for low-income groups with the features of balanced price, cost, sustainability and affordability (Ahuja and Jütting 2004). Premium for low income people have been set up at a considerable percentage from their income (Ahuja and Guha-Khasnobis, 2005).

Accordingly, micro insurance products should be affordable by poor otherwise they will not accept these insurance systems. Preparations such as introducing slight benefit packages, premium payment options (time option) and linking to the subsidy programs, could be arranged to overcome this situation (Churchill, 2006).;In some instances, premium is subsidized and it is being set at a level that is not exceeded the willing amount the people desired to pay (Biener, 2013). Alternatives such as distance-based insurance may lead to growth of affordability by enabling customers to buy insurance policies according to their risk as they can afford. However this system should require the public support to develop a distance-based insurance policy (Litman, 1997).

Most of the risks faced by micro insurance clients are uninsurable. However they have failed to make continuous premium payments on time even for their insurable risks (Morduch,.2006).Clients are ready to pay for insurance, only if they are allowed to withdraw money in future and also if they are well aware of the benefits specified in the policy. Otherwise they are not willing to spend for insurance from their current income (Ahuja and Jütting 2004).Accordingly, it is revealed that the premium charged for micro insurance is significantly low as its distribution cost held at a lower level (Gitau, 2013).

Sum insured (coverage) is a key factor in promoting micro insurance since clients get persuade when appropriate coverage is set up for insurance products. Therefore it is important to understand about “willingness to pay” because micro insurance clients simply do not intend to pay premiums when they are not covered their necessities or if they do not feel its usefulness for them (Chatterjee, 2005).As a strategy, many Insurance companies tent to use narrow networks to maintain an affordable premium for their clients. As a result the quality of the insurance service become inferior and clients lose their trust on insurance and it may create situations where they not go for repeat purchasing (Blumenthal, and Collins, 2014).

Difference between expected insurance benefits and premium payable for these benefits, is the loading which reflects from price of insurance. Accordingly, higher loading have resulted the least affordable coverage. If the premium is kept at a higher level, the client`s purchasing capacity of other necessities would be weakened and in such situations probability of spending for insurance also get shrink. Expected benefits form the insurance policy may vary from consumer to consumer. A higher premium may be charged from people encountered with greater risks and at the same time a lower premium can be given to the people met with least risk. However the affordability threshold is varying depending on the situation and the insurance can be identified as affordable in a condition where the predicted probability is above the threshold. When consider the affordability of uninsured, of people who are having an income above the poverty level, 82% of them fall in to affordable category(Bundorf, and Pauly, 2006).

It is notified that many international insurers and reinsurers are unable or unwilling to underwrite the affordable insurance for the risks faced by the lower income groups (Goodwin, 2001). In a tragic event, an affordable insurance for lower income households will provide backup support to overcome the post disaster liquidity issues and for securing their livelihoods (Linnerooth-Bayer, and Mechler, 2006).

Insurance affordability and availability can have adverse impact by the climate changes those are recently taken in to discussion by the most of the economist and many nations in the world. Economic development and the financial cohesion of the rural communities are impetus by the affordability and availability of insurance (Mills, E. 2005).Availability and affordability of insurance for lower income people are not always welcome because premium may be fluctuated due to disastrous events such as hurricane, tsunami, earth quick and etc (Mills, Roth Jr, and Lecomte, 2006). However the government should be involved in introducing mechanisms to make more affordable coverage for catastrophic prone regions where the lower income earners are living in (Harrington, and Niehaus, 2001).

Insurance premium for lower income group can be made more affordable by applying hazard mitigation procedures. However a national level discussion is required to identify who should support the costs of making insurance inexpensive to those who are in need (Kousky, and Kunreuther, 2014).In the absence of support from international aids or government subsidy systems for low income households find it difficult to obtain insurance, and in such situations they can apply few affordable options for mitigating disaster risks in their lives including insurance as a risk mitigation tool (Linnerooth-Bayer, Mechler, and Pflug, G. 2005).

Introducing a subsidy scheme for insurance is the straightforward way to make insurance more affordable to lower income group. On the other hand, the insurers are being more efficient and responsive to consumer preference, and it also encourages customers to request risk-adjusted premiums. However these are not available to the people who are in high risk category. Subsidy schemes can be arranged through donors or through government for the people who are in high risk categories (Van de Ven, and; Schut, 2007).

In America, small organizations have faced problems in safeguarding health of their workers in finding affordable insurance covers for them. As for smaller firms, loading higher premiums from insures are major challenges to obtain health insurance for their workers and they are given with a lower coverage compared to the large organizations(Swartz, K., and Keenan, P. S. (2001).According to the findings of the research conducted by Gabel, Dhont and Pickreign - 2002, in government policy making process, simply the flat rate tax credits are insufficient to make health insurance affordable to lower income adults to regardless of gender, age, location or health conditions (Gabel, Dhont, andPickreign, 2002).;

Health insurance Survey conducted by the Commonwealth fund 2001, explains that the challenges faced by the people those who are without having access to group health coverage in obtaining sufficient, reasonably priced individual health insurance. The solutions available from private sector to resolve long term problem is also doubtful. So that, it is advisable the government to intervene in facilitating health insurance that is more affordable to self, small business in a country (Ku and Ross, 2002).

Premium level of the insurance will obviously makes a difference in affordability for poor people. However the affordability of insurance is also partially represent the utility. Since the Micro insurance is designed for poor and excluded communities it should be sensitive to three conditions; those are simplicity, affordability and easy access (Dror, and Jacquier, 1999). Cost of Micro insurance system, financial viability and risk protection are three main factors that are highly co related and trade off among each. In this context, insurance cover can be designed at an affordable rate and in a way that is financially viable, but it is observed that, in a catastrophic event, given coverage is not sufficient enough to overcome the situation by low income earners (Werner, 2009).By all of four aspects, affordable price is one of the robust concerns of implementing micro insurance at successful level. Micro insurance should be included tangible value at affordable price to the people from Bottom of Pyramid (BOP). And at the same time, insurance business should be given assurance to long-run sustainability in commercial sense (Churchill, 2006).;Many Economists have predicted micro insurance as a compromising tool for improving the social protection of underserved people in the society. However a considerable number of micro insurance programs have been failed due to disorganized plans in sustainable insurance schemes and also those were unaffordable by lower income people (Loewe, 2006).

In the context of developing countries, two key challenges prevail in providing insurance for lower income group category. The first challenge is to develop a product at an affordable price which is reasonable for lower income people. The second is to generate sufficient funds (back up capital) to cover the claims that have likelihood of occurring in future (Meze-Hausken, Patt, and Fritz, 2009).; For developing affordable insurance products for lower income people, arrangements are being made to keep premium and coverage at a lower level (PPP, 2010).Insurers face difficulties in promoting affordable insurance products without supports from donors. The expandable insurance market for household and business without the donor support is only 1% in developing countries. This prevails at 3% in middle income counties and it extends to 30% in Developed countries (Linnerooth-Bayer, and Mechler2006)


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Barriers in implementing Micro Insurance. The self-employment sector in Sri Lanka
University of Bolton
Business Administration
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Micro insurance
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Ravinda Herath (Author), 2016, Barriers in implementing Micro Insurance. The self-employment sector in Sri Lanka, Munich, GRIN Verlag,


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