MR Microinsurance_2012_03_29.indd - International Labour ...

The potential of microinsurance for social protection
Thirdly, microinsurance is more suitable for some risks than for others. Experience
indicates that the problems tend to be least in life and disability insurance.
Insurance against extreme weather events is currently offered in a number of
countries, although this is much more difficult to design and manage (see Chapter
4). Offering a micro-pension is also difficult as it requires a high degree of customer
trust in providers, especially since the benefits are payable decades after the
first premiums have been paid, not to mention the difficulty for the provider of
managing investments to yield the long-term returns that make future pension
payments possible. Until now, what has been sold in India under the label of
“micro-pension” differs little from a simple savings product, which contains no
pooling of risks. Contributions are defined while benefits depend on the interest
achieved by the insurer investing member funds in the capital markets. In addition,
benefits are either lump-sum or annuities that are paid only until accumulated
funds are exhausted (although entitlements can be inherited when a customer
dies before her/his funds have been completely paid out). As a result,
clients bear the entire risk of interest rate instability and longevity of members
(Shankar and Asher, 2009).
As illustrated in Chapter 5, health microinsurance also poses serious challenges.
Health microinsurance generally refunds the costs of medical treatment
to policyholders, irrespective of their income or assets. That means that for any
given indemnification package the insurer expects to spend on average the same
amount on the benefits provided to all policyholders. Consequently, it cannot
sell the package to low-income clients at a lower price than that for high-income
clients. At best, it can offer poor clients a slimmed-down package that does not
cover certain illnesses, excludes very expensive medical treatments or is restricted
to a certain maximum annual amount. Insurance is most effective when it covers
very high expenditure: typically, many policyholders can provide for small
expenses through their own savings. Nevertheless, for low-income clients a limited-benefits
package that refunds at least some healthcare costs (e.g. only inpatient
services) can still help in the absence of social health insurance schemes.
These considerations demonstrate how important it is to analyse the possible
effects of microinsurance using a systemic approach to social protection. Only a
holistic analysis can capture, for example, the interplay between health financing
and healthcare provision. Health microinsurance makes no sense if healthcare
services are not offered in the region concerned or if the services provided are of
very poor quality. Additional attention must also be paid to the contractual arrangements
and payment mechanisms agreed between microinsurers and healthcare
providers (see Chapter 6). A holistic analysis is needed to serve the three public
goals of equity, affordability and access to (quality) health services.
Furthermore, under normal circumstances microinsurance constitutes only a
second-best option when compared with social insurance. Membership of the
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