What exactly is microinsurance and how might it be the answer to insurance industry? Microinsurance are products that offer coverage to low-income households. A microinsurance plan provides protection to individuals who have little savings, and is tailored specifically for lower valued assets and compensation for illness, injury, or death. The current market size in the United States is over $1 trillion, and insurance companies still make customers pay toward deductibles that they might never use. It seems as though the game is changing as millennials are making their way into the market place. Insurance companies might have the answer if they utilize microinsurance policies.
As of recently, the Sequoia Capital firm invested in Lemonade, which is startup company focused on bringing peer to peer insurance to the public. Similarly, Felicis Ventures backed up Metromile, which allows drivers to only pay insurance for the coverage they need, rather than paying for a 6-month policy they might not use. If a person only drives their vehicle a limited number of miles per week, is really necessary to force them to pay hundreds of dollars for insurance? This is exactly the reason why microinsurance policies might be a better option. Instead of paying a monthly amount for health insurance, why not allow customers to pay a microinsurance policy for the times they have to actually go to the doctor.
Microinsurance available to customers and businesses would allow both to pick and offer the right amount of financial protection for the shortest period of time. Opendoor is a great company that has changed the way we buy and sell homes. The company will purchase your home instantly over the internet, allowing the consumer to close in just three short days. In addition, Opendoor will handle the escrow process for you, which can be a headache for many when trying to sell your home. The company Oscar provides users with quick and easy healthcare insurance options through the click of button on your mobile phone. You can see that technology and innovation are changing, and insurance companies need to be willing to change too. In fact Accenture found that 78 percent of customers would actually be willing to share personal information with insurance companies if they provided an incentive in return. This incentive could be lower premiums or faster claim settlements, but there has to be something in it for the customer.
Insurance companies might think it is hard to develop microinsurance policies as they have to keep policies regulated. Legally, insurance companies are required to maintain statutory reserves. The longer an exposure period, the larger a reserve must be. However, with microinsurance, exposure periods actually focus on short-term events, like a yearly doctor check up, and reduces exposure. In reducing exposure, you limit the need for additional reserves.
Do you think microinsurance is something the United States will see more of in the future and is it worth it? Let us know what you think in the comments!