f_0016638_14380 - Microinsurance for Brazil: The GILR-Bond...

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The Whitehead Journal of Diplomacy and International Relations Microinsurance for Brazil: The GILR-Bond Bernardo Weaver M 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 1 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 reimburse. 2 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). 3 Overall, private insurance is not well understood in the developing world, and is seen as unnecessary. 4 Most of these low income populations have lived their whole lives without ever purchasing this abstract service 5 . 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. 6 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 97
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WEAVER The Whitehead Journal of Diplomacy and International Relations combining multiple policies, the extent and usefulness of insurance can be better understood by those that would benefit most, but possess the least amount of insurance. As the old adage goes, “insurance is not bought, but sold.” Given that, if consumers buy microinsurance worried about sickness, or a loss in the family. Consumers might also worry about their cattle or sheep or their house
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This note was uploaded on 02/01/2012 for the course POLS 351 taught by Professor Shaw during the Fall '08 term at Boise State.

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f_0016638_14380 - Microinsurance for Brazil: The GILR-Bond...

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