Application of credibility theory in the rating of micro-insurance products

Abstract

This paper discusses how credibility theory can be used in rating a micro insurance product. It starts by defining micro insurance and explaining its role in an economy and particularly for the low income group. The paper further gives a description on how to design a Micro Insurance product, the need of regulatory authorities and the terms of reference for the design and the role the Actuary is expected to play. The paper finally applies the credibility theory and uses the Kenyan insurance ten years industry data to calculate risk premium for the various classes.