Using Microinsurance and Financial Education to Protect and Accumulate Assets

This paper examines how microinsurance helps in the creation and accumulation of assets.

The paper:

• Examines the need to protect the assets of the poor;
• Uses evidence drawn largely from East Africa and India;
• Looks at common strategies that the poor use to cope with risk;
• Presents microinsurance as a possible solution;
• Proposes financial education as a way to increase the poors understanding and adoption of microinsurance.

The paper states that microinsurance:

• Involves the pooling of risks across individuals who make small, regular payments in exchange for the promise of future compensation in the event of a financial loss;
• Targets the low-income market through innovative cost structures, premium payment systems, terms of coverage, and delivery modes;
• Is being adopted by many microfinance institutions (MFIs), but the rates of adoption and usage are often lower than the MFIs projections.

The paper suggests that financial education would help microinsurance clients by:

• Focusing on the clients understanding and use of different financial products;
• Impacting asset protection and accumulation;
• Helping prospective clients to target the assets that they need to protect through formal microinsurance;
• Assisting clients to mobilize the assets that they are protecting.