MR Microinsurance_2012_03_29.indd - International Labour ...

What is the impact of microinsurance?
3.3 Expected and observed impact of microinsurance
According to insurance theory, microinsurance works – like all insurance – by
replacing “the uncertain prospect of losses with the certainty of making small,
regular premium payments” (Churchill, 2006). This is because individuals want
to “smooth” or balance their consumption across different “states of nature” or
possible real-world outcomes such as health, sickness, abundant harvests and
droughts. For example, when comparing the experience of one year of excessive
consumption and one year of starvation, most individuals would choose – and
purchase insurance to secure – two years of average consumption. This is because
excessive consumption does not increase satisfaction (or what economists call
utility) as much as starvation lowers it (Gruber, 2007).
By equalizing consumption across variable states of nature, microinsurance
provides policyholders with four main categories of possible benefits: financial
protection, access to services, psychological effects and impact on the community.
Financial protection is two-fold, occurring both ex-post when microinsurance
cushions households from the economic implications of actualized risks,
and ex-ante when it permits the reallocation of resources to more effective and
profitable uses. Access to services, on the other hand, encompasses the beneficiaries’
ability to efficiently utilize insurance, the quality of benefits provided and
changes to related outcomes like health status or school enrolment rates. Psychological
effects comprise changes to subscribers’ emotional well-being such as
developing feelings of empowerment or peace of mind. And finally, impact on
the community includes spill-over effects that concern the entire population living
in areas where microinsurance is provided, for example creation of jobs or
improved healthcare infrastructure. Across these categories, microinsurance is
believed to affect people by introducing new benefits and displacing or reducing
the need to pursue traditional, but theoretically less efficient, risk management
strategies.
Table 3.1 overleaf summarizes the framework and outlines the main results
from the 21 studies, which are presented in more detail in the following sub-
sections.
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