Part III. Micro-insurance: a mechanism to manage risks

Instructional material | 01 January 2006
Part III of the document “The role of micro-insurance as a tool to face risks in the context of social protection” deals with several aspects of micro-insurance, an ex ante mechanism that manages risks. The term micro-insurance is used to designate either the organization, the service of an organization or the set of institutions that provide insurance to beneficiaries, who are people excluded from formal social protection schemes. The chapter shows two of the numerous aspects of diversity in MIS: the diversity of products and diversity of delivery models. Indeed, MIS cover various risks such as, among others, life, health and crop, which are more or less complex to deal with. The pre-existing civil society organizations, the community-based organizations or the commercials insurers can manage the complex business of micro-insurance on their own, create partnerships or outsource several functions (product design, marketing, technical and financial management…) to a Third Party Agent (TPA). With reinsurance and coinsurance (syndicate insurance), the micro-insurance schemes can share the risks by redistributing and diversifying risks. But there remains a challenge: it is a long process that needs specialized skills and stable sources of funding. That is why linkages between MIS and other risk management instruments are necessary to supplement micro insurances.