MR Microinsurance_2012_03_29.indd - International Labour ...

What is the impact of microinsurance?
Income and consumption smoothing
Adverse events and the need to raise funds to meet related OOP expenditure can
affect households’ patterns of income and consumption in several ways. Many
shocks, such as the illness or death of breadwinners or income-generating livestock,
the theft or breakdown of productive assets and the destruction wrought
by disasters, can curtail earnings while imposing the twin challenges of both coping
with the expense of the events in question and continuing to meet on-going
household needs. Under these circumstances, low-income people take a range of
undesirable actions such as eating less or less nutritious food. By reducing the
financial burden of shocks, microinsurance aims to enable policyholders to
maintain their incomes and standards of living in times of crisis. Microinsurance
can also stabilize, and in some instance even increase, subscribers’ incomes and
subsequent consumption in other ways. If cover improves members’ health or
the productivity of livestock or equipment, for example, through better access to
health or veterinary care or information on optimal maintenance, the people,
animals or products in question might be capable of producing more or higherquality
goods and services.
Two papers provide support for these presumed effects. Aggarwal (2010) estimated
that the average annual income growth of households covered by Yeshasvini’s
health microinsurance scheme was significantly higher than that of their uninsured
counterparts over a three-year period. Wagstaff and Pradhan (2005) determined
that Vietnam Health Insurance (VHI) increased policyholding households’ consumption
of non-medical goods, such as food and education, and the “use value”
of consumer durables.
Asset accumulation and resource allocation
Regarding the ex-ante financial protection impact of microinsurance, researchers
have also studied the intervention’s effects on potential asset accumulation and
resource allocation. While Cai et al. (2009) attributed policyholders’ increased
acquisition of sows to a Chinese government livestock insurance scheme, Gine
and Yang (2007) concluded that rain-indexed insurance reduced Malawian
farmers’ take-up of loans for purchasing higher-yielding hybrid maize and
improved peanut seeds (see Box 3.3) – an unexpected outcome given that microinsurance
is intended to encourage riskier, but presumably more profitable,
production decisions. 8
8 Here, the distinction between borrowing under stress (to raise funds after the occurrence of shocks) and
borrowing pre-emptively to facilitate investment should be noted.
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