Insurance for the Poor?

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This study was prepared for the Financial Services and Poverty Reduction research project and was presented at the conference with the same name held at Bank headquarters in September of 2004. It first establishes the considerable welfare cost borne by the region’s poor when facing uncovered risks (which, in principle, are insurable), and offers empirical evidence that shows the clear disadvantages of the informal risk management instruments typically used by the poor. Next, the paper proposes ways to increase access to insurance for the poor in the region. Particularly relevant, among the proposed solutions, is the implementation of the partner-agent model in which formal insurance institutions are coupled with existing microfinance institutions for the delivery of their products, making the most of the comparative advantages of each sector.

While the use of microinsurance should not be looked upon as a “silver bullet” solution to all types of risks management problems, it is clear that access to this type of instrument can improve the welfare of the poor by providing access to a wider pool of potential investments and is also a cost effective instruments for coping with negative shocks.

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