Insurance helping the poor against risks of economic shock

The poor are more vulnerable to risks and economic shocks than the rest of the population. They are also the least able to cope when a crisis does occur. Poverty and vulnerability reinforce each other in an escalating downward spiral. Not only does exposure to these risks result in substantial financial losses, but vulnerable households also suffer from the ongoing uncertainty about if and when a loss might occur.

Because of this perpetual apprehension, the poor are less likely to take advantage of income-generating opportunities that might reduce poverty.

From a development perspective, access to insurance – alongside other risk managing financial services such as savings and emergency loans – makes sense for the poor to protect themselves.

 On its own, insurance cannot eliminate poverty, but it can contribute to achieving the Millennium Development Goals (MDGs). Although development efforts tend to focus on strategies to boost incomes and create jobs, it is important to recognize that gains can quickly be lost when vulnerable households experience a loss or crisis as recognized by the G-20. It is necessary to complement efforts to boost productivity with corresponding efforts to provide protection.

If insurance can help protect vulnerable households from falling back or further into poverty, they will be less likely, for example, to have to choose which child to send to school and more likely to seek preventive medical care and accumulate assets to pay for education, for daughters as well as for sons.

Within this context and taking into account the potential of insurance to extend social protection and reduce poverty, the ILO’s Microinsurance Innovation Facility was launched in 2008 with funding from the Bill & Melinda Gates Foundation.

 To maximize the developmental effect of insurance on low-income livelihoods, the

Facility aims to answer three core questions: To what extent can insurance help low-income families to manage risks?

What insurance products are appropriate for the poor and how can the industry provide them?

How to develop an insurance culture among the poor and support well-informed risk-management decisions?