MR Microinsurance_2012_03_29.indd - International Labour ...

42 Emerging issues
This chapter strives to answer three questions: 1) to what extent can microinsurance
contribute to closing the gap in social protection coverage in developing
countries; 2) how should it be designed for maximum impact; and 3) under what
conditions would it be preferable to other social protection instruments?
The chapter argues that a systemic perspective on social protection is crucial
for analysing the effects of microinsurance and for optimizing its design. It is just
one possible social protection tool and should be well embedded in a country’s
overall social protection framework. Microinsurance is no substitute for social
transfers, which are financed by taxes and intended to support the poorest and
most vulnerable members of society. In addition, it is not a priori superior to
social insurance (especially for risks such as illness and old age), as long as both
instruments are realistic options, i.e. where the State has both the political will
and the institutional capacity required to build up social insurance schemes for
low-income households.
The potential for microinsurance is huge in most developing countries, especially
if many governments are unwilling or unable to extend public social protection
schemes to excluded segments of the population. In addition, countries
are generally unable to provide comprehensive social protection systems against
all relevant risks faced by each and every household. Thus, there is plenty of
room for microinsurance in the majority of developing and emerging countries.
This chapter proceeds as follows: section 2.1 defines social protection, with an
overview of its scope and functions. Section 2.2 explains why many households
in developing countries lack access to adequate social protection. Section 2.3 portrays
microinsurance as a social protection instrument and discusses possible
roles of microinsurance within the overall social protection framework. Section
2.4 concludes with an appeal for a systemic perspective to be employed when
analysing and implementing microinsurance schemes.
2.1 Scope and functions of social protection
People everywhere are confronted with manifold risks. A risk is the possibility of
an event with negative effects leading to a decline in income for a person or
household (as in the case of unemployment) or a rise in expenditure (as in the
case of a price shock), or both (as would be the case when an illness leads to disability
that prevents employment and results in healthcare costs).
The existence of risk and the lack of preparedness for that risk leads to vulnerability,
which is the likelihood that a person or household will suffer a significant
decline in well-being due to a risk event. This likelihood rises with 1) the probability
of a risk event; 2) the expected magnitude of its effects; and 3) the lack of resilience
of the persons or households, which depends, among other things, on asset
endowment, including cash and property.