Microinsurance for Risk Mitigation and Crisis Recovery

This brief focuses on current microinsurance products that are designed to protect poor entrepreneurs in the event of disaster by covering damage to assets used for income generation and disruption of their livelihoods.

The brief states that:

• Currently available information only provides guidelines to design and implement life, loan and health insurance that protect the poor from personal calamities;
• Current microinsurance products are unable to cover asset and livelihood losses in the wake of a major disaster;
• It is unclear whether microinsurance is feasible or effective in the event of natural disasters.

The paper examines:

• Various kinds of insurance such as livelihood and work security insurance, Islamic insurance, asset/property insurance, etc;
• The process of designing, studying steps in product design, premiums, coverage and delivery methods.

The paper identifies common characteristics among microinsurance products that can effectively protect the poor against natural calamities, including:

• Diversified outreach and low transaction costs;
• Good baseline information on livelihood activities and crisis-coping mechanisms of the poor;
• Established insurance firms for partnership;
• Client awareness and appreciation of products;
• Political and donor support.

The paper concludes that:

• It is extremely challenging to design good products at an affordable price and quickly settle claims after the disaster;
• Creating demand in some areas might require subsidization;
• As a disaster management tool, microinsurance needs to be considered along with other microfinance products.