The Whitehead Journal of Diplomacy and International Relations
Microinsurance for Brazil: The GILR-Bond
icrofinance, in general, worries about alleviating poverty in the developing
world. But, how do the poorest people avoid falling into poverty traps on their way
to the middle class?
What recourse do people have from becoming poor due to
illness, natural disaster, or the loss of assets like livestock? Microinsurance is
insurance that caters to the lowest income
groups in a country and serves those who
are not usually served by private insurance.
The microinsurance enterprise is
comprised of several components and issues. First, microinsurance relies on massive
market penetration. For microinsurance to work effectively, insurance contracts must
be sold to vast numbers of people at very low rates and provide coverage against
losses that are usually not large. Thus, microinsurers sell millions of contracts to turn
a very small profit, with even total revenue volumes being small.
Second, microinsurers are known for having simple and direct underwriting
methods, usually charging the same premium to risks that are roughly similar to one
another. Claims handling in microinsurance must also be straight-forward, as insurers
must guarantee many losses that are not easy to identify, evaluate, and
Third, microinsurance contends with problems of commercialization.
Often times, consumers in low-income households do not trust, understand, or
desire to buy private insurance. Private insurance is regularly seen in these cases as
deceitful (as insurers might not pay claims) and complex (as there are policy
exceptions in insurance contracts that are difficult to explain).
insurance is not well understood in the developing world, and is seen as unnecessary.
Most of these low income populations have lived their whole lives without ever
purchasing this abstract service
Fourth, microinsurance is a product that low-income households must purchase
in a combined fashion, with one policy covering multiple events. For example, the
ideal microinsurance product would cover not only health risks and life risks to the
wage earner, but also the family livestock.
There are many reasons why the
combination of risk coverage is important in the commercialization of
micorinsurance; consumers need to be convinced that the insurance they are buying
is useful. As detailed earlier, centuries have kept low income households away from
private insurance, and distrust is a cultural obstacle not easily overcome. As such, by