Microinsurance: A Risk Management Strategy

This paper highlights the role of microinsurance in addressing the vulnerability to risk and economic stress faced by poor. It cautions that donors need to be careful in approaching the promising, but untested, field of microinsurance. Further, the paper identifies the difficulties that suppliers face in providing insurance to the poor people:

• Lack of technical specialization;
• Low awareness about insurance and lack of knowledge about its working;
• Inefficient distribution channels for microinsurance.

 Finally, the paper enlists the dos and dont's of microinsurance for donors. As per the paper:

• Donors should:
  • Carefully assess client demand and the full range of financial services for managing risk;
  • Encourage commercial insurers to serve the poor by brokering relationships with distribution channels such as MFIs;
  • Work only with strong institutions and analyze their capacity to manage microinsurance products;
  • Coordinate microinsurance efforts with other suppliers;
  • Involve technical expertise in microinsurance operations;
  • Be careful about supporting unregulated insurance schemes;
  • Closely monitor performance of microinsurance partners;
  • Educate poor people on the benefits of insurance;
  • Provide access to technical assistance for specific technical problems.
• Donors should not:
  • Push institutions to offer microinsurance;
  • Fund new microinsurance providers that lack technical capacity;
  • Provide grant funding to cover claims costs;
  • Attempt to influence government policies.