The concept of micro-insurance has been developed to provide insurance cover to those who earn $1-4 per day and cannot buy general insurance policies.

A micro-insurance policy can be offered to them in the form of life insurance, health insurance, disability insurance, small business insurance etc.

Academically, the bottom of the pyramid approach advocated by C.K. Prahald in his book The Fortune at the Bottom of the Pyramid in 2004 is the backbone of the concept of micro-insurance where insurers struggle to reach the economically lower segment of the society.

With the insurance to GDP ratio of 2pc and an insurance density of 10pc, the country offers a vibrant opportunity for the development of need-based insurance products

According to the World Bank around 4pc of the population falls below the poverty line as a result of unforeseen hospitalisation, in Pakistan.

A brief survey reveals that insurance products are targeted for the middle and upper class segments.

Some telecom companies have started micro-insurance products with the help of insurance companies. These include Telenor Pakistan’s Easypaisa micro-insurance plan in collaboration with Adamjee Insurance and UBL’s Omni Term Life Insurance Plan; both offered to people with lower purchasing power.

Similarly, the government of Punjab, with the help of the SBP and the Bank of Punjab, has introduced a crop loan insurance programme for small farmers while the Sindh government has started a province-wise universal life insurance plan for accidental deaths.

However, these initiatives are limited in scope and size and hence not sufficient to cover the country’s vast population that has a lower purchasing power. Therefore, supportive steps are required at both the government and private level to provide insurance coverage to the poor.

The government should design a suitable regulatory framework for the development of micro-insurance schemes.

This set of regulation needs to be flexible, business supportive and encourage the development of new micro-insurance plans.

The step should be followed by facilitating insurance companies to form alliances and building partnerships with telecom service providers in order to develop unique micro-insurance policies since 110 million plus strong telecom customers present an untapped opportunity.

This will involve designing steps for the easy issuance of licenses, minimum monitoring and reporting requirements.

The development of micro-insurance products needs to be encouraged by reducing tax rates on the earnings of insurance companies and offering tax incentives to buyers of micro-insurance policies.

Decision makers at insurance companies should assess the demand of micro-insurance policies.

With the insurance to GDP ratio of 2pc and an insurance density of 10pc, the country offers a vibrant opportunity for the development of need-based insurance products.

By following a bottom of the pyramid approach, the untapped micro-insurance market can be reached by building consumer awareness to help the poor protect themselves from financial shocks.

Published in Dawn, Business & Finance weekly, March 20th, 2017