MR Microinsurance_2012_03_29.indd - International Labour ...

The potential of microinsurance for social protection
Meanwhile, there is a growing consensus that social protection has three key
functions:
1) Prevention: To provide security to vulnerable households by reducing the likelihood
of their suffering a serious decline in well-being and possibly even falling
into absolute poverty. This goal can be achieved by a) reducing the likelihood of
risk occurrence (risk prevention); b) reducing the possible effects of risk occurrence
(risk mitigation); or c) supporting households in their efforts to cope with
the effects of risks once they have materialized (see below).
2) Protection: To extend financial or in-kind support to the poor through the
redistribution of income within society.
3) Promotion: To expand the opportunities for the poor and vulnerable to raise their
productivity and income by encouraging them to take on the additional risks that
are associated with investing their savings in education and productive assets.
These three functions can be performed by social protection schemes in three
different ways:
1) by reducing ex-ante the likelihood of a risk event (risk prevention);
2) by limiting ex-ante the possible effects of a risk event (risk mitigation) through
the accumulation of savings (risk provisioning), insurance (risk sharing) or selfinsurance
(risk diversification); and
3) by absorbing ex-post the effects of a risk event (coping with risk).
By fulfilling these tasks, social protection contributes to development in three
different ways (Cichon and Scholz, 2009; de Neubourg, 2009; Loewe, 2005a).
Firstly, it contributes to socio-economic justice by preventing people from falling
into poverty, by providing support to people in poverty and by helping people to
escape from poverty. Secondly, social protection contributes to productive investment
and economic growth. It encourages low-income households, in particular,
to invest excess income in education and tools of production, and thereby mobilizes
local savings for productive purposes. Lastly, social protection contributes to
political stability and social cohesion. In the 19th century German Chancellor
Otto von Bismarck initiated the world’s first social insurance scheme mainly to
contain opposing socialist forces, to appease an underprivileged industrial workforce
and to build a German nation state, rather than out of any concern for the
poor or a feeling of solidarity. Indeed, politicians in many countries around the
world have since then followed this example.
Social protection is thus a cornerstone of a country’s social, economic and
political development.
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