MR Microinsurance_2012_03_29.indd - International Labour ...

46 Emerging issues
2.2 Social protection in developing countries
Social protection can be organized by the State, commercial companies, self-help
groups or other players. Most countries have social protection systems run by all
of them.
State-run social protection schemes are financed either by the contributions
of their members or by general tax revenues. Social insurance schemes, in particular,
are financed by regular contributions and are usually linked to formal (contractual)
labour relationships. They are based on specified rules, often underpinned
by law, and provide benefits when a member of the household
experiences a sudden shock due to a specific risk that is predefined by law (e.g.
old age, a disability, or the death of a breadwinner). Social insurance schemes can
thus effectively reduce the vulnerability of households that can afford to pay
some regular contribution in exchange for a reduced exposure to risk. Nonetheless,
they address only a specific set of risks, which may not always include the
risks that constitute the most serious threats for their members. For example,
such schemes do not, in general, provide protection against harvest failure resulting
from weather-related risks – even though these risks constitute a more serious
problem for many rural households than old-age or work injuries, which can be
managed through the mutual support of relatives and neighbours. In addition,
social insurance generally fails to help the extreme poor, who are unable to pay
even very small contributions, and thus tend to be excluded from social insurance
schemes.
Social transfer schemes help to prevent and alleviate both chronic and
transitional poverty. In addition, they normally address all kinds of risks, but
they tend to be less powerful in terms of reducing the vulnerability of households.
Since they are financed by tax revenues, benefits are usually quite limited
and aim to prevent households from falling into severe poverty. However, they
are not able to prevent any deterioration in the well-being of richer households
because the benefits provided by social transfer schemes fall well short of
replacing their former income – something that social insurance schemes are
often able to do.
There are two types of social transfer schemes: “targeted” and “universal”
schemes. Targeted schemes grant benefits only to people in need, while universal
schemes pay out to all households. Although the sum of the benefits
provided by targeted schemes is, as a rule, considerably smaller than the total
expenditure of universal schemes, their budgets are sometimes even higher
because of the targeting costs involved (i.e. the costs of identifying eligible
households).
Likewise, a distinction can be made between cash transfer schemes (e.g. social
assistance, social pension and basic income grant), vouchers (e.g. for education or
health services), and in-kind transfers (e.g. food rations or free public health care).