Microinsurance

Peru: Microinsurance paves the way for social protection in rural areas

A large insurance firm and an association of water irrigation users have teamed up to become the first providers of micro-life insurance for millions of small farmers in Peru. The project, which has received support from the ILO’s Microinsurance Innovation Facility and the Bill & Melinda Gates Foundation, will allow a third of rural families in Peru to have access to social protection for the first time. ILO reports from Lima.

News | 14 October 2008

LIMA (ILO News) – The National Committee of Irrigation District Users of Peru (JNUDRP), which has 1,6 million members across the country, is to implement a new initiative aimed at helping a third of the rural population in Peru.

The microinsurance plan, administered by La Positiva, a well-known insurance firm in Peru, will become the first step towards social protection for many of Peru’s nine million rural citizens.

The scheme will offer micro-life insurance at marginal cost of the income generated by harvests. The cost will be added to the water irrigation prices paid by the farmers.

“By protecting policyholders and their families, the system will be lending a hand in terms of risk-management to around a third of the population of Peru. We are talking about nine million rural citizens”, said Virgilio Brenis, Chair of JNUDRP.

“This is an excellent innovation which will improve the quality of life of farmers, many of whom face huge difficulties when they lose a family member.”

The initiative put forward by La Positiva and the JNUDRP was one of nine projects selected during the first round of the ILO Microinsurance Innovation Facility, which totalled 127 applications from 40 countries.

The ILO’s Facility – funded by the Bill & Melinda Gates Foundation – praised the Peruvian project for its originality in bringing together a commercial insurance firm and an association which works with farmers and rural communities on a daily basis.

Another important aspect of the project was its plan to produce promotional materials aimed at beneficiaries, including videos, board games and posters, both in Spanish and two other vernacular languages of rural of Peru: Quechua and Aymara.

Brenis said this is the first time micro and small farmers in Peru would be offered insurance. Policyholders are expected to pay between US$0.5 and US$2 per month to be part of the scheme.

“This product is aimed at the least well-off families in Peru. It’s a group that urgently needs access to life insurance.” Brenis added that if the plan works, other types of microinsurance are likely to follow.

Rural irrigation has been practised in Peru since pre-Columbian times. JNUDRP was created in the mid-1980s and is currently made up of 112 associated regional committees in the coastal, mountainous and jungle areas of the country.

“Its social base is made up of 1,584,368 farmers. These policyholders (both men and women) represent 92 per cent of owners of agrarian units on Peruvian territory”, said Brenis.

“Most of them work under difficult conditions, with little access to technology, improved or certified seeds, and with expensive inputs and low profit margins, since there are no clear marketing mechanisms and market prices do not reflect the enormous effort that goes into production”, he added.

However, he said that work was being undertaken regarding training, productivity, technological developments and risk reduction. “The microinsurance programme will improve the quality of life of the rural population in general.”

The death of a farmer or a family member can be highly destabilizing given the precarious economic situation in rural areas. Life insurance can cover the costs which arise following such a loss, as well as making an important contribution to risk management in the case of farmers who must consider each investment carefully.

According to La Positiva, its association with JNUDRP will allow it to reach a section of the population previously ignored by insurers, despite the fact that the agricultural sector accounts for 23 per cent of the Peruvian workforce.

The resources provided by the ILO’s Microinsurance Innovation Facility are essentially aimed at innovation in terms of microinsurance, including definition of the product that is to be offered, creation of marketing models and promotion of a culture of insurance among poor workers who have traditionally been marginalized in terms of social security schemes.

The Facility also supports technical assistance, research and dissemination activities in the field of microinsurance. It is administered by the ILO’s Social Finance Programme, with the financial backing of the Bill & Melinda Gates Foundation. Over a five-year period ending in 2012, it is hoped that grants totalling US$18 million will be provided for 40 to 50 microinsurance projects in the developing world.

The first round of the ILO Microinsurance Innovation Facility selected three projects from Africa, three from Asia Pacific and three from Latin America and the Caribbean.

Microinsurance is a mechanism which protects poor people from a series of risks (accidents, health, death of family members, disasters, etc), in exchange for payment of a premium adapted to the policyholders’ needs and incomes.

For further information on the ILO Microinsurance Innovation Facility, please visit: /microinsurance.

Members of the press should contact: microinsurancemedia@ilo.org or the ILO press office in Latin America and the Caribbean: prensa@oit.org.pe, +511/615-0386 (Luis Córdova).

La Positiva http://www.lapositiva.com.pe/

The National Committee of Irrigation District Users of Peru http://www.jnudrp.com