The Effects of Microinsurance on the Insurance Market : A Theoretical Analysis

Microinsurance is one of the fastest-growing new markets among people at the bottom of the financial pyramid. These low-income customers were previously precluded by traditional insurance. Will insurers really benefit from serving a larger amount of customers? Our results show that competition between micro and traditional insurance will decrease the insurer’s demand for traditional insurance. Both the premiums and profits of traditional insurance will reduce after providing microinsurance. In the asymmetric case with only one provider, we show that the provider’s premium for traditional insurance and profit are lower than the non-provider’s