Community Micro-insurance

Micro-insurance schemes are programs and institutions that adapt traditional insurance mechanisms (pre-payment, risk-pooling and coverage guarantees) to the informal sector, providing services to beneficiaries that are commonly excluded from formal insurance.

E. Morelli, G.A. Onnis, W.L. Ammann, C. Sutter (Eds), Micro insurance – An Innovative tool for risk and disaster management

 Communities are encouraged to assume the responsibility of delivering universal coverage through their ownership and control of their own endeavors and destinies.

The Ottawa Charter: Health promotion

Through local, community management of these insurance schemes in a non-profit environment, individuals regain the control of their health plans, reduce their risks through a risk-sharing mechanism and reduce their household expenditures. They also become capable of covering segments of their community which could not access the needed healthcare services before.

In Community-based / Mutual insurance schemes, the members are both the insured and the insurer and they govern and administer their scheme democratically.

E. Morelli, G.A. Onnis, W.L. Ammann, C. Sutter (Eds), Micro insurance – An Innovative tool for risk and disaster management

 This is very different from private, corporate micro-insurance schemes that are sometimes offered by the private sector.

Collective actions enable a community to receive healthcare services by directly putting this community directly in charge of three key tasks of the micro-insurance management process:

  1. Design of the micro-insurance unit, setting services included and contribution amounts.
  2. Collection of contributions in an informal or semi-formal environment.
  3. Allocation and purchasing of services based on preferences and needs.
  4. Supervision of the financial management of the micro-insurance unit.

Unlike private insurance packages, marketing, overhead costs and profits are to be kept to a bare minimum and calculation of contributions should not be based on individual risk assessment but rather on average risk of the community. This puts a focus on preventive and risk-reduction measures for the entire community as an attempt to reduce average risk and therefore, individual contributions.

It also brings back services to a patient-centered approach where only high quality, affordable and accessible services will be chosen by the micro-insurance unit.

In short, the common denominator of micro-insurance is its proximity to clients and its limited financial turn-over.

In order for a micro-insurance scheme to function properly, it must be sensitive to three conditions: it needs to be simple, affordable and located close to members.

In addition, its self-management capacity is a key characteristic that must be present in the community micro-insurance unit. Through its community base, it becomes “the enterprise of the community”. Through a democratic process, members define their needs and packages of services without having an insurer determining that with profit-making in mind as it is the case with private insurance, and without policy makers deciding, on their behalf, about what they “think” is best for the whole population without addressing specific needs of individual communities. It enables them to act as a cohesive social unit that can fulfill a role no one else can do better: relate needs and priorities to their prevalent activity, location-specific conditions, the level of resources, etc.

It also introduces transparency as a necessity in its proper functioning, corruption and abuse of the system no longer need to be confronted: they are simply innately discouraged through the nature of the design of the system. In addition, it is particularly innovative in the way it builds rather complex health insurance notions on familiar social interactions, pushing through a families and communities’ rooted strive for better service quality, more competent financial schemes and coverage of excluded individuals.

Micro-insurance and Rotating Savings and Credit Associations (ROSCAs)

We strongly believe that the micro-insurance model has high potentials of success in the Egyptian community for many reasons. The most prominent of those reasons is the wide-spread presence of Rotating Savings And Credit Associations (ROSCAs).

ROSCAs are grass-root micro-finance bodies that are created within small communities of families, friends, co-workers or neighbors, to share common resources in order to address the specific timely financial needs of its members. Run on a volunteer, collective base, members of these associations do not sign contracts and these informal agreements cannot be enforced through legal proceedings. Their functioning relies solely on mutual trust and the best interest of each member of these associations to make them work. Failure to abide to the agreed upon conditions of these associations result in some sort of social exclusion that becomes the unwanted punitive aspect of non-abidance, which is more than often sufficient to ensure compliance. All capital of ROSCAs are internal and, through them, communities can sometimes address individuals’ special financial needs such as weddings, new births, etc. ROSCAs have become an integral part of the common Egyptian culture and are almost always resorted to on all socio-economic levels, from the very rich to the poorest of communities. This success story provides a rich soil for implementation of community health micro-insurance which relies on the same principles of solidarity and collective community management.

“One size fits all” no longer a problem 

Among the major benefits of applying micro-insurance as a building block for a national healthcare system is the way it deals with specific communities’ needs and expectations. Since it is specifically designed and managed by a community, a micro-insurance model can be created in a way that accounts for the differences in choices of the preferred healthcare system detailed in the study findings.

Micro-insurance and Risk-pooling

The idea behind the proposed micro-insurance model is to collect contributions on a income-measured basis and regardless of individual risks, and then, through the risk-pooling mechanism of the micro-insurance scheme, resources are distributed over the individuals based on their needs and their actual risks. This dictates however an “all-or-none” principle where communities have to understand that all members of their communities must be part of this scheme in order for it to function properly.

Graphical representation of the flow of funds in the proposed micro-insurance model through income-rated premiums and risk-based distribution

Graphical representation of the flow of funds in the proposed micro-insurance model through income-rated premiums and risk-based distribution

Graphical representation of the flow of funds in the proposed micro-insurance model through income-rated premiums and risk-based distribution

On the other hand, the biggest and most noticeable defect in the implementation of a micro-insurance scheme on a large, national scale is the fact that the enabling of community management and funding of these schemes does come with a price, which is the limited risk-pooling between a small number of individuals and the presence of cross-subsidies only within the members of the micro-insurance unit. It delivers solidarity inside each community but it completely detaches it from other communities. In addition, lower income communities will be most liable to suffer from a full disruption of their micro-insurance scheme in case of catastrophic illnesses or public health hazards. This is where the social re-insurance component comes to action.


E. Morelli, G.A. Onnis, W.L. Ammann, C. Sutter (Eds), Micro insurance – An Innovative tool for risk and disaster management, Global Risk Form GRF Davos, Davos, 2010

The Ottawa Charter: Health promotion, 1st International conference on Health promotion, Ottawa, World Health Organization,1986

D. Dror, C. Jacquier, Micro-insurance: Extending health insurance to the excluded, International Social Security Review, 2001, P. 15

The Bamako Initiative, Women’s and children’s health through funding and management of essential drugs at community level, World Health Organization, 1986

J.F. Outreville, The health insurance sector: Market segmentation & international trade in health services, 1998, P. 111-124