MR Microinsurance_2012_03_29.indd - International Labour ...

The potential of microinsurance for social protection
2.3 Microinsurance as a social protection tool
One possible instrument for filling these gaps is microinsurance. As a risk-pooling
tool, financed mainly by premiums, microinsurance invloves a horizontal
redistribution of income between peers with comparable risk profiles, rather than
on a vertical redistribution from the rich to the poor. At the same time, the prefix
“micro” indicates that the contribution rates are affordable for low-income
earners, with correspondingly limited benefits. Ideally, the scheme’s benefit
package, enrolment conditions and transaction formalities should meet the
specific needs of the target group.
A tremendous diversity of organizations have set up microinsurance schemes
that operate in line with this definition. This would include social insurance corporations
(e.g. the Comprehensive Social Insurance Scheme in Egypt), public
insurance companies (e.g. Janashree Bima Yojana offered by the Life Insurance
Corporation in India), commercial insurance companies, some healthcare providers
(e.g. the Chogoria Hospital in Kenya), many microfinance institutions,
private welfare organizations (e.g. IRAM in Mozambique or Activists for Social
Alternatives in India), cooperatives (e.g. the Asociación Mutual Los Andes in
Colombia) and community networks (such as harambees in Kenya).
If properly designed, microinsurance constitutes an efficient means of providing
workers in the informal economy with social safeguards. In this way, it can
potentially contribute to closing the gaps in coverage that exist with the social
protection schemes operating in developing countries (see Figure 2.1). Empirical
studies from Bangladesh and India provide evidence that microinsurance can
(though it does not always) have a significant positive impact on several aspects
of multidimensional poverty (Hamid et al., 2010). For more on the impact of
microinsurance, see Chapter 3.
In addition, microinsurance can also play an important role in empowering
its members. Microinsurance contracts are often the product of a dialogue
between providers and the target groups, whereas public social protection
schemes are often created by purely top-down processes. As a result, microinsurance
can be responsive to the specific needs and preferences of low-income earners.
In addition, successful microinsurance projects have a demonstration effect:
they raise awareness about the significance of providing protection against risks
and of pre-empting the likely consequences should they actually materialize.
Similarly, they show that collaboration within groups can strengthen the opportunities
and position of the individual (Loewe, 2009b).
There are, however, some limitations to the potential of microinsurance (see
Loewe, 2006).
Firstly, microinsurance is not a substitute for a social transfer scheme because
microinsurance addresses vulnerability rather than chronic poverty, while social
transfers provide immediate support to people in poverty. Microinsurance
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