Savings in Microinsurance: Lessons from India

Evaluating savings-linked insurance products in India
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The Microinsurance Innovation Facility’'s Briefing Note 12 presents a framework that can be used to analyze the design of savings-linked insurance products. It uses the framework to assess a new wave of products targeted at the low-income market in India, and presents lessons and trade-offs that insurers must consider when designing these products. The products analyzed in the study show that the insurers evaluate a number of subtle trade-offs to design products that have distinctive features and offer potential value to customers. Its findings include:

  • Accumulating sufficient funds to cover benefits in the case of death or if the policy reaches maturity is challenging for savings-linked insurance products;
  • Insurers reviewed have adopted four different approaches to balance the death benefit and the maturity benefit in their products;
  • Design of the product is influenced by how insurers allocate the customer’s contributions across both these benefits.

The paper concludes that insurers need to balance the trade-off between simplicity and flexibility. Persistency of long-term insurance products has a significant impact on their financial viability for savings policies, since the profits are generally skewed towards the later years of the policy.