Viewing Microinsurance as a Social Risk Management Instrument

Drawing on the existing literature on social risk management (SRM) and microinsurance, this paper highlights some of the potential uses, and limitations, of microinsurance in the context of the SRM framework. The SRM approach concerns itself with how, and with what instruments, the society manages risks.

According to the authors, SRM practitioners need to recognize that the effectiveness of any risk management instrument depends on:

• Specific characteristics of the targeted households or groups;
• Nature of risks that these households and groups face;
• Availability of alternative risk management options.

The authors conclude that there is potential for efficient and equitable risk management through microinsurance:

• Evidence suggests that insurance, along with savings and credit, may assist capital accumulation and improve risk-bearing capacity;
• SRM options should strike a balance between household risk management activities and the multiple instruments including:
  • Informal mechanisms;
  • Market-based mechanisms;
  • Publicly provided mechanisms.
• Microinsurance is a potential part of the SRM toolbox; however, risk management can be enhanced through combinations of instruments.