What Do We Know about the Impact of Microinsurance?
Microinsurance is not an end in and of itself for stakeholders in the development sector. Governments, donors, and other development actors support it to achieve broader objectives like contributing to the reduction of poverty, reducing maternal and infant deaths, increasing productivity in the agricultural sector, reducing child labor and so on. These are some of the potential impacts microinsurance might unfold.
Understanding the impact of microinsurance is not only important for development driven players but also market oriented actors, like insurance companies. It helps design better products, gain a competitive edge, and thus stimulate the market in the long term.
Though it has been developing rapidly in the past 15 years, the microinsurance sector is relatively new. However, a growing number of impact assessments have been conducted or are still underway. Knowledge is still patchy but certain key insights are emerging:
Microinsurance appears to deliver on the promise of what insurance is all about - protection of households from the adverse consequences of risks. Studies show that this is true both for reducing catastrophic – and hence often impoverishing – spending as well as reducing average out of pocket payment. Financial protection however is limited by the limited coverage inherent to microinsurance. Also, impact research has not been completed for all kinds of risk coverage and the evidence to date is strongest in the domain of health insurance.
Better access to health care
As most impact studies so far investigated health insurance products, evidence of these products improving access to care is fairly strong. This includes all levels of care, dependent on what the benefit package covered. Some studies point to equity effects within the pool of insured, but it has to be noted that often the poorest of the poor cannot afford insurance coverage.
Productive and other effects
Microinsurance can unfold a myriad of effects, many of which are insufficiently researched. These effects not only improve the household’s ability to cope with shocks after they happened (ex-post) but also importantly change the behavior of households and can thus even generate positive effects even without (or before) the shock happens (ex-ante effects).
Evidence is for instance emerging on the productivity enhancing effects of microinsurance. Some agricultural insurance schemes have been enabling those with insurance coverage to take more risky but higher return investment decisions. In this case, insurance can enhance and not just safeguard the economic development of the households it protects.
Several other effects have been observed in certain schemes, but they will need to be corroborated in other settings to confirm their validity beyond a specific context.
As the microinsurance sector continues to develop quite dynamically, covering an increasing number of people, more knowledge is needed to help it serve low income people. Various insurance approaches are being tried, not only differing in the risk protection they offer (product) but also the way they make this coverage available (processes and delivery mechanism, including sales and servicing). Not all approaches will have the same effects and impact assessments can reveal which products and processes of microinsurance are leading to larger impact.
Comparing the impact between different schemes – and between microinsurance and alternative risk management mechanisms – is important to guide prudent investment of government and development funds. Furthermore, careful analysis of impact on different subgroups of insured – e.g. economically different, social, gender – can further enhance our understanding of equity related effects of microinsurance arrangements.
To enhance the quality and quantity of impact assessments in microinsurance, the Impact Working Group of the Microinsurance Network will publish the “Practical Guide for Impact Assessments in Microinsurance” in autumn 2013.