managing risk.pdf

Managing Risk and Creating Value with Microfinance55Table 4.2 Risk Coverage and OutcomesEx ante risk proteconIndividualsCommunity groups andassociaonsEx post risk absorponIndividuals and communitygroups and associaonsSource: Authors.OutcomesCrop diversificaonIntercroppingBeer land useIncome source diversificaonAsset and inventory accumulaonAdopon of new producon technologiesRisk pooling through group coordinaonOutcomesMigraonAsset salesIncreased daily laborHuman capital decapitalizaon (withdrawal of children from schools, nohealth care investment)Mutual community help (in some cases)If one assumes that low-income households want insurance, how can a microfinance institution (MFI) providecoverage on a cost-effective massive scale? What makes microinsurance attractive to the uninsured and theinsurance providers? The MicroInsurance Centre has identified several factors that shape a client’s decision topurchase insurance coverage: 3• Client’s perceptions of insurance• Client’s understanding of how insurance works (premium, coverage, deductibles, and requirements)• Product matches demand• Ease of payment• Cost of coverage• Client’s disposable income• Cost and frequency of health care or other needsTo be attractive and effective, microinsurance providers need to generate an appreciation of the productthrough client education. As figure 4.2 shows, often clients set clear priorities. Once a large group of clients hasbeen convinced that microinsurance offers useful protection from high-priority risks, a number of institutionsbecome involved in the definition and delivery of the product. This chain of institutional actors includesthe policyholders and beneficiaries, delivery channels, regulated and unregulated insurers, and reinsurancecompanies (see table 4.3).3. See MicroInsurance Centre LLC (2009).