In tandem with the growth of microloans and microsavings, insurance policies geared towards low-income households have also become increasingly widespread over the past decade in developing and emerging countries. There is hope that microinsurance will allow large segments of the population who lack access to government social security to insure themselves against adverse life events, thus helping to safeguard their economic well-being. Yet much work is to be done if this goal is to be attained. On the one hand, the availability of microinsurance is still extremely limited. On the other hand, potential and current microinsurance customers do not place much trust in insurance providers. They also lack knowledge about specific insurance products, as shown by our investigation of a microinsurance policy in Ghana. Yet another factor is that many commercial insurers still have not managed to adapt to the particularities of the microinsurance market.Microinsurance, Low-income households, Risk, Ghana

Lena Giesbert

Susan Steiner

English

Research Papers in Economics

German Institute
for Economic Research
Weekly Report
www.diw.de
Microinsurance: A Large Untapped 
Market
Susan Steiner 
ssteiner@diw.de
Lena Giesbert 
giesbert@giga-hamburg.de
JEL Classification: 
G22, O16, O55
Keywords: 
Microinsurance,  
Low-income households,  
Risk, Ghana
In tandem with the growth of microloans and microsavings, insurance policies geared 
towards low-income households have also become increasingly widespread over the 
past decade in developing and emerging countries. There is hope that microinsurance 
will allow large segments of the population who lack access to government social 
security to insure themselves against adverse life events, thus helping to safeguard 
their economic well-being.
Yet much work is to be done if this goal is to be attained. On the one hand, the 
availability of microinsurance is still extremely limited. On the other hand, potential 
and current microinsurance customers do not place much trust in insurance provid-
ers. They also lack knowledge about specific insurance products, as shown by our 
investigation of a microinsurance policy in Ghana. Yet another factor is that many 
commercial insurers still have not managed to adapt to the particularities of the 
microinsurance market.
Microfinance has been a topic of keen public interest in recent years. An important 
milestone in the growth of awareness for microfinance was the granting of the Nobel 
Peace Prize to Muhammad Yunus in 2006 for his idea of extending small loans to the 
poor. Microinsurance, however, entered the scene much later than microloans and 
microsavings, and only became a prominent topic of discussion quite recently. Just 
ten years ago hardly a single commercial insurance company viewed the “bottom 
of the pyramid” – i.e. low-income earners in developing and emerging countries – 
as a profitable market. Today, a number of larger insurers such as AIG and Allianz 
offer microinsurance products in many countries. Microinsurance has also become 
an important issue for those involved in development cooperation.1
What is Microinsurance?
In the words of Craig Churchill, the editor of perhaps the largest publication on the 
subject, Protecting the Poor: A Microinsurance Compendium, microinsurance is 
“the protection of low-income people against specific perils in exchange for regular 
1 Giesbert, L. and Voss, J.: Marktbasierte Mikroversicherung? Mikroversicherung als Instrument der sozialen Sicherung, 
GIGA Focus Global 10/2009, Hamburg, GIGA, 2009.
No. 33/2010
Volume 6 
December 29, 2010246
Susan Steiner, Lena Giesbert
premium payments proportionate to the likelihood 
and cost of the risk involved.”2 This is the same 
definition that applies to regular forms of insurance, 
except for in one small – albeit crucial – respect: the 
customers involved. In order to gear microinsurance 
to the needs of low-income people in developing and 
emerging countries, microinsurance policies must be 
designed quite differently from standard insurance 
products. For example, microinsurance premiums 
– and, therefore, the sums insured – are much lower 
than that of standard insurance policies.
Often premiums are collected monthly or even 
weekly instead of once a year in order to take into 
account the irregularity of the income earned by mi-
croinsurance’s target customers. Local actors such 
as microfinance institutions are often integrated into 
the distribution process in order to help minimize 
the social distance between insurers and potential 
customers.
The question as to which risks should be cov-
ered is an additional important determining factor 
for the design and feasibility of microinsurance. 
Idiosyncratic risks – i.e. those that only impact spe-
cific individuals or households, such as sickness, 
accidents, or death – can be insured by the insurance 
provider in an easier manner and at lower risk than 
covariant risks such as natural catastrophes or crop 
losses, which always simultaneously impact many 
individuals in close proximity to one other. This 
explains why agricultural and disaster insurance 
can be found much less frequently around the world 
than microinsurance for individual risks, including 
first and foremost life insurance (particularly credit 
life insurance3), followed by accident, property, and 
health insurance.
Great Expectations
Microinsurance has tremendous potential for both 
sides of the market. On the household side, micro-
insurance offers the opportunity to obtain a reli-
able, formal safeguard against adverse life events. 
In developing countries in particular, individuals 
are subjected to many risks. Poor sanitary condi-
tions, for example, lead to a higher frequency of 
sickness than in developed countries. Furthermore, 
people possess hardly any strategies for overcoming 
such risks. In developing countries the majority of 
the population has no access to government social 
insurance, as such benefits are often reserved for 
public sector employees, and, to some extent, the 
2 Churchill, C.: Protecting the Poor: A Microinsurance Compendium. Ge-
neva, International Labour Organisation, 2006.
3 Credit life insurance is mandatory insurance bound to microloans.
employees of the formal private sector and military. 
Private sector insurance markets are poorly devel-
oped in many places, and when they do exist, they 
often only serve an affluent minority. A number of 
alternatives, mostly informal safeguard mechanisms 
do in fact exist in families and village communi-
ties, including risk distribution systems (e.g. burial 
societies), networks for mutual support (e.g. loan ar-
rangements; private money transfer), and measures 
to self-insure against hard times (e.g. savings; crop 
stockpiles). Many studies have shown, however, that 
these mechanisms typically only offer a low degree 
of protection and are also very cost intensive.4
From the perspective of the insurance companies, 
microinsurance represents a tremendous untapped 
market that is worth billions. In some countries, 
particularly in Africa, only 5 to 10% of the popula-
tion is insured through government social insurance 
programs. It is self-evident that the sale of insurance 
policies to the remaining 90 to 95% of the popula-
tion – or at least to the less impoverished segments 
thereof – is an enticing business opportunity.
Despite the excitement over this new market, how-
ever, the growth of microinsurance is hindered by 
several problems. The availability of microinsurance 
is still extremely limited. Of the four billion people 
worldwide who live on less than two dollars per 
day, only 78 million had access to microinsurance 
in 2007.5 On the supply side, high transaction costs 
– particularly in relation to the very low premiums – 
are a problem. Among other things, these high costs 
are a product of insufficient infrastructure and a lack 
of financial literacy among potential customers.
Insights from Ghana
Within the scope of a research project seeking to 
identify factors that influence the acquisition of 
microinsurance, a quantitative household survey 
was administered to more than 1,000 households 
in three regions in Southern Ghana in February and 
March of 2009.6 Among the surveyed households, 
350 had acquired the so-called Anidaso microinsur-
ance policy, which will be discussed later in greater 
detail. The average monthly income of the surveyed 
households that had a microinsurance policy was 
91 Ghanaian cedi (88 euros), a figure considerably 
higher than the income of the households without 
4 cf. Dercon, S.: Income Risk, Coping Strategies, and Safety Nets. World 
Bank Research Observer, 17 (2), 2002, pp. 141–166.
5 Roth, J. et al.: The Landscape of Microinsurance in the World’s 100 Poo-
rest Countries. Appleton, WI, The Microinsurance Center, 2007.
6 This research project was financed by the foundation DZ Bank-Stiftung 
and carried out by the authors of this Weekly Report at the German Insti-
tute for Global and Area Studies (GIGA).Microinsurance
247 DIW Berlin Weekly Report No. 33/2010
a microinsurance policy (78 Ghanian cedi, or 75 
euros). Approximately 30% of the surveyed house-
holds could be described as poor; i.e. their income 
fell below the national poverty line. In October 2008 
four focus group discussions were also carried out. 
Each group was composed of an equal number of 
individuals with insurance and without insurance.
Anidaso: Ghana’s First Microinsurance 
Policy
In October of 2001 CARE International began 
to develop a life insurance policy by the name of 
“Anidaso” (“hope”) in collaboration with Gemini 
Life Insurance Company (GLICO). Beginning in 
2005, CARE gradually pulled out of management 
and monitoring activities, and today all aspects of 
the policy are administered by GLICO. Anidaso is 
a complex product. Its main component is a term 
life insurance policy. In addition, it includes flexible 
accident coverage, a benefit for hospital stays, and 
an optional savings plan. The policy is offered by 
GLICO insurance agents in cooperation with rural 
banks. The premiums (approximately two euros per 
month) are directly debited from customer bank 
accounts.
The Anidaso policy was the first private-sector mi-
croinsurance coverage available in Ghana. Today, 
numerous companies are active on the market: Of 
the 38 insurance providers in Ghana, six compa-
nies have sold an estimated 50,000 policies in total, 
primarily in the capital of Accra and in other large 
cities. Alongside life insurance policies (particularly 
credit life insurance) other forms of insurance have 
been gradually introduced, such as property insur-
ance. Furthermore, agricultural insurance products 
are in a state of planning, including weather index 
insurance. Nevertheless, the market penetration of 
microinsurance – that is, the number of insured in-
dividuals in relation to the potential market – is still 
extremely small: just 0.8%.7 Some 15,000 Anidaso 
policies had been sold by the end of 2008. It is the 
only microinsurance product sold in any appreciable 
numbers in rural regions of Ghana.
Households Are Exposed To Tremendous 
Risks But Have No Insurance
Illness and death were the most common forms of 
risk for the 1,031 Ghanaian households who par-
ticipated in the survey (Table 1). Thirty-six percent 
of the households indicated that at least one house-
hold member or close relative had fallen ill over the 
last five years; 23% reported a death. Between 10 
7 Matul, M. et al.: The Landscape of Microinsurance in Africa. Microinsu-
rance Paper 4, Geneva, International Labour Organisation, 2010.
and 20% of the households named the destruction 
of property or assets, the interruption of business 
activities, theft, flooding, or the loss of a job as ad-
verse events that had taken place over the last five 
years. Other events were cited by less than 10% of 
the households.
Due to the frequent incidence of illness and death, 
we can suppose that a majority of households would 
be interested in insuring against the losses associated 
with these risks. Indeed, 52% of households in the 
surveyed regions had acquired the publicly provided 
National Health Insurance coverage, which provides 
free basic medical care at recognized hospitals and 
health clinics. By contrast, only 2% were insured 
through Anidaso, although both types of coverage 
were introduced to the market at the same time. An 
additional 5% of households had acquired other 
life insurance products. A total of 7% had private-
sector pension, accident, or automobile insurance. 
The risk of death was insured far less frequently 
than that of illness, despite the fact that burials 
in Southern Ghana are a very expensive ritual. In 
Ghanaian burial ceremonies, the families seek to 
display and preserve their social standing through 
a show of wealth.
In order to explore the topic of underinsurance, 
households without any insurance coverage were 
asked as to why this was the case. Approximately 
half indicated that insurance was too expensive 
Table 1
Risk Events Occurring Over the Last 
Five Years
Number of 
incidents cited1
Percent
Illness 376 36.5
Death 241 23.4
Destruction of property/assets 180 17.5
Interruption of business 167 16.2
Theft 137 13.3
Flooding 130 12.6
Loss of work 124 12.0
Drought 99 9.6
Pest infestation and animal disease 82 8.0
Accident 69 6.7
Divorce/separation 45 4.4
Burial of family members 40 3.9
Disputes over land/assets  35 3.4
Other 50 4.8
Number of households surveyed 1 031
1 Multiple responses possible.
Source: 2009 Ghana Household Survey.  DIW Berlin 2010
Illness and death are the largest economic risks for 
Ghanaian households.248
Susan Steiner, Lena Giesbert
they had acquired the insurance policy in order to 
mitigate the effects of future economic shocks, to 
protect their family in the event of illness or death, 
or for the purpose of saving money (Table 3). Only 
10% identified a reason that had nothing to do with 
the actual Anidaso insurance benefits. Nevertheless, 
many customers displayed a severe lack of knowl-
edge about their specific policy. In the focus groups 
it became clear that the insured did not have suffi-
cient information about their benefits. In some cases, 
they had no knowledge at all. One group, for exam-
ple, debated whether school fees for children were 
covered. Participants also indicated that they did not 
know if they could trust their GLICO agent. Others 
were unaware of how to contact their agent.
Even more problematic, however, was that the 
GLICO agents themselves were ill-informed about 
the Anidaso policy. Whether intentionally or unin-
tentionally, many also provided false information 
about the policy. In one of the survey locations, 
potential insurance customers were promised easier 
access to bank credit within the scope of the sales 
pitch. This and other examples of false expecta-
tions being engendered in customers as well as indi-
vidual cases of fraudulent behavior understandably 
lead to frustration and a poor image not only for 
GLICO, but also for insurance services in general. 
In addition, considerable deficits were identified in 
management practices, particularly in data collec-
tion and in the administration of policy premiums. 
GLICO does not possess a customer database with 
standardized information about the customer (name, 
complete address, DOB, etc.). It only possesses a 
list of names, locations of residence (but not street 
names or house numbers), and the date the insur-
ance policy was signed. The debiting of premiums 
is non-transparent for customers and documents are 
not forwarded to customers reliably, such that some 
customers are unaware they have insurance cover-
age or don’t know that their coverage has expired.
Conclusion
Advocates of microinsurance hope that it will pro-
vide a reliable form of protection against adverse 
events for a large number of people in develop-
ing and emerging nations. However, our examina-
tion of the Anidaso policy in Ghana shows that the 
microinsurance market suffers from a number of 
weaknesses, including knowledge deficits among 
target customer groups in relation to insurance in 
general and individual products in particular; a 
lack of communication between the insured and 
the insurance provider; as well as severe deficien-
cies in data collection. Such weaknesses can also 
(Table 2). Fifteen percent stated the opinion that 
insurance was not important, and another 9 to 10% 
identified lack of trust in the insurance provider 
and a lack of knowledge about insurance options 
as reasons.
Neither the Insured Nor the Insurance 
Companies Are Well Informed
Most Anidaso customers seemed to understand the 
basic principle of insurance. A total of 90% indicated 
Table 3
Motivation for the Acquisition of an Anidaso Policy1
Number of times 
mentioned
Percent
Insure against future economic shocks 180 56.8
Protect the family against illness and death 77 24.3
To save money 28 8.8
To acquire collateral for a loan 17 5.4
Pension rights 5 1.6
To finance medications 4 1.3
To finance burial  2 0.6
To finance school fees 1 0.3
Other 3 0.9
All households with Anidaso insurance 317 100.0
Number of surveyed households 1 031
1 Microinsurance policies offered by the company GLICO in Ghana.
Source:  2009 Ghana Household Survey. DIW Berlin 2010
The basic principle of insurance was understood by most households.
Table 2
Reasons Indicated for Lack of 
Coverage 
Number 
of times 
mentioned
Percent
Too expensive 177 46.1
Not important to me 58 15.1
Lack of trust in insurance provider 38 9.9
Lack of information about insurance options 33 8.6
No time / I don’t want to be disturbed 22 5.7
No knowledge about insurance in general 18 4.7
Haven’t thought about it until now 15 3.9
Insurer too far away 11 2.9
Other 4 1.0
Not entitled 3 0.8
Insurance not seen as effective 3 0.8
Process to complicated 2 0.5
All households without insurance 384 100.0
Number of surveyed households 1 031
Source:  2009 Ghana Household Survey. DIW Berlin 2010
More than a third of the surveyed households had no 
insurance coverage whatsoever.Microinsurance
249 DIW Berlin Weekly Report No. 33/2010
be observed in other parts of the world, and are 
not limited to this example case. Microinsurance 
providers must improve their communication with 
customers and expressly strive to serve the needs 
of those at the “bottom of the pyramid.” Only then 
can microinsurance become the success story hoped 
for by so many.
(First published as “Mikroversicherungen: Ein 
großer unerschlossener Markt”, in: Wochenbericht 
des DIW Berlin Nr. 43/2010.) DIW Berlin
Mohrenstraße 58 
10117 Berlin
Tel. +49-30-897 89-0
Fax +49-30-897 89-200
ISSN 1860-3343
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Microinsurance: A Large Untapped Market

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