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Disaster insurance for the poor? A review of microinsurance for natural disaster risks in developing countries

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Publication date
19/07/2006
Number of Pages
31
Language:
English
Type of Publication:
Studies
Focus Region:
Global
Focus Topic:
Climate / Weather / Environment
Rural Finance / Insurance
Type of Risk:
Natural disasters
Type of Risk Managment Option:
Risk transfer
Commodity:
Crops
Livestock
Author
Reinhard Mechler, Joanne Linnerooth-Bayer, David Peppiatt
Organization
International Institute for Applied Systems Analysis (IIASA); ProVention Consortium

This study provides an in-depth review of microinsurance by analysing a range of case studies and examining the benefits and limitations of microinsurance. The results of the study show clear evidence of the value and potential of microinsurance in transferring risk and protecting low-income households and businesses against disaster losses. Microinsurance can provide access to post-disaster liquidity, thus protecting assets and livelihoods as well as providing funds for reconstruction. As insured households are more creditworthy, insurance can also promote investments in productive assets, for example higher- risk/higher-yield crops. Moreover, insurance can encourage investment in disaster prevention if insurers offer lower premiums to reward risk-reducing behaviour. Thus the study suggests microinsurance can be considered as an effective risk-transfer mechanism and an integral part of an overall disaster risk management strategy. However, the long-term viability of such programmes, particularly in the face of large covariant losses, is still to be determined. The study concludes with a number of key challenges and next steps for the evolving microinsurance agenda.