Microinsurance Definition - Next Revolution

Microinsurance Definition - Next Revolution

Microinsurance is a financial services geared to low-income people to face various risks of life, such as contagious, and death caused by accidents, disability, loss of property due to theft or fire, and the loss of agricultural crops, natural disasters and disasters resulting from man-made. The poor are more of these risks than other people, knowing that they are least able to adapt in the event of any crisis.

MicroInsurance is one of the smaller ways in which to provide poor protection against these risks. It is by helping low-income families to manage the risks and difficulties they faced, the microinsurance can assist them in that they have a sense of financial confidence even in the face of major weaknesses.

Microinsurance, low-cost insurance policies that cover the lives, health, crops and property of the most vulnerable, are being seen as a central way of providing social protection to the increasing numbers of people affected by natural disasters such as hurricanes, flooding and drought.

A recent report by the German insurance giant Munich Re calculated that 2010 was the second worst year for disasters since 1980. It reported that 950 global catastrophes had amounted to overall losses of around $130bn. Of this, only around $37bn was insured. For example, only 1% of the $14bn of property damage caused by Haiti's massive earthquake was covered by insurance.

At the Bonn climate change talks in 2008, microinsurance was touted as a central component of climate change adaptation measures in Africa, Asia and Latin America.

There are hopes that microinsurance could offer some form of social protection in other countries across the region. A government-backed scheme run by Peruvian insurance company La Positiva targets over one-third of Peru's 9 million rural population, offering micro-life insurance at a marginal cost of the income generated by a family's annual harvest.

The cost of the insurance, which is between $0.5 and $2 a month, is added to the water irrigation price already paid by the farmers. Brazil and Mexico have also been identified as huge markets for growth, with millions of potential customers.

Yet despite the buzz surrounding microinsurance, the industry's reach is still limited. The 150 million people currently holding policies represent only a small fraction (around 5%) of a potential market of up to 3 billion.

Unlike microfinance programmes that provide people with instant cash, the insurance industry has so far struggled to overcome the simple problem of trying to ask poor people to pay for something they might never use.

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