How microinsurance protects poor people
“He was our anchor, the one who kept everything together”. These are the words of Luiza, a housewife living with her husband, mother and two teenage sons in the low-income neighbourhood of Nilopolis on the northern outskirts of Rio de Janeiro. The family had just returned from a holiday visiting family, with only R$4 (~US$2) left on their names, when disaster struck. Unexpectedly, Luiza’s father died. Though he had had some health problems from time to time, he had refused to go to a doctor and his death had come as a big shock to the family. A few months after his death, they are still coming to terms with it.
How the Initiative contributes to poverty alleviation
Access to insurance is an important strategy for reducing poverty. The inability to manage the risk of vulnerability caused by the sudden death of a family member, illness, loss of income or property can perpetuate poverty. Financial markets – and insurance services in particular – can play an important role in mitigating welfare losses resulting from the occurrence of such risk events. Use of insurance also provides a catalyst for economic development in low-income communities. The concept of providing insurance services to low-income consumers is generally referred to as microinsurance.
Millions of poor people do not have access to insurance services.
One reason why access to insurance services may be problematic relates to the policies and approaches to the regulation and supervision of insurance that are, inadvertently or otherwise, not conducive to the supply of insurance products and services appropriate to the low-income segments of their population. In some cases, the regulatory and supervisory requirements for insurance products may not be appropriate or proportionate to the size, nature and complexity of the risk or otherwise may not be supportive for developing market led mechanisms. This problem is particularly acute in emerging markets that often have limited capacity to develop supervisory policies, regulation and practices most suitable to develop a market that can serve the specific insurance needs of all their population. As a result, members of the population who can afford a suitable insurance policy may get excluded, but also suppliers may operate outside the radar of regulation and supervision ascribed to formal insurers.
To address these issues, it is essential to strengthen institutional and regulatory capacity in order to improve access to insurance products, markets and services. The regulatory and supervisory frameworks in jurisdictions interested in developing improved access to insurance should be consistent with international standards.
Therefore, the Inititiave will seek to create a close collaboration between donors and development agencies working on enhancing access to sustainable insurance services and insurance supervisors through the International Association of Insurance Supervisors (IAIS), the international standard setting body for insurance regulation and supervision.
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