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Friday, March 23, 2007

Protecting the Poor: Microinsurance Compendium

By Nitin Rao

Protecting the poor"Last year, global insurance giant American International Group Inc.opened a garage-size office in this dusty town of about 50,000. Coming up soon here: a policy that insures a cow for a $10 annual premium. "

This opening in WSJ article "Insurers Seek Growth in Developing Markets" captures best how the world is changing.Microinsurance is a powerful instrument of change and has been discussed in this community before.

On March 16, The International Labour Organization announced the availability of a new book, Protecting the poor: A microinsurance compendium, published with Munich Re Foundation for the CGAP Working
Group on Microinsurance.

Based on in-depth analysis of 40 microinsurance schemes around the
world, this authoritative book brings together the latest thinking of leading academics, actuaries, and insurance and development professionals in the microinsurance field. The result is a practical, wide-ranging resource which provides the most thorough overview of the subject to date.

The book defines microinsurance as "the protection of low-income people against specific perils in exchange for regular premium paymentsproportionate to the likelihood and cost of the risk involved." This definition is essentially the same as one might use for regular insurance except for the clearly prescribed target market: low-income people. However, as demonstrated throughout the book, those three words make a big difference.

In many developing countries, where the vast majority of the population has limited income, some insurance companies, such as AIG and Allianz, are beginning to explore ways of reaching out to this market, perhaps because they are encouraged to do so by regulators (e.g. in India), or to fulfill social responsibility mandates, or because they see the huge volumes of low-income people as a viable market opportunity. At the same time, to reduce the vulnerability of the poor, many development organizations and policymakers are keen to understand the role that insurance can play.

Together these two perspectives--market-led microinsurance and microinsurance to extend social protection--are resulting in a proliferation of microinsurance experiences, some good, some bad. This book analyzes those experiences and provides clear recommendations to practitioners and policymakers that will enable better coverage to be made available to more low-income people.

Also worth reading are the case studies by the CGAP Working Group on Microinsurance on good and bad microinsurance practices.

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