Innovations in Insuring the Poor: Overview

This paper focuses on ways to develop insurance markets along with other financial instruments such as savings, credit and social protection policies.

Households lose income or the ability to earn income when hit by shocks. The paper states that:

• Households cut back on consumption, reduce investments in education or sell productive assets in response to shocks;
• Households limit their exposure to risk by passing up a profitable but risky opportunity, diversifying economic activities or maintaining assets in easily disposable forms;
• Actions to deal with shocks and limit exposure to risk reduces productivity and perpetuates poverty;
• Targeting social protection schemes to poorest households and ensuring they deliver timely support can be costly and difficult;
• Financial products help households, but they are also at risk without insurance;
• Financial and technological innovations, such as index-based insurance and cash-less health insurance, have made insurance more accessible and affordable to the poor.

Finally, the paper states that the new tools to manage risk will have to be complemented with investments that reduce risk faced by poor households, such as low cost irrigation schemes, drought-resistant seed varieties, improved sanitation and better preventive healthcare.