IGS University of Twente

Confidence among the poor vital for success of microinsurance

It starts with trust. Only then will the world’s poorest consider taking out microinsurance. Microinsurance can provide poor people with the wherewithal to deal with risks such as natural disasters, health problems and accidents. Poor people often have few financial reserves to help buffer them against these kinds of risks, and this results in a spiral of poverty. Karlijn Morsink, PhD researcher at the University of Twente, investigated why the predicted theoretical demand for microinsurance has in practice failed to materialize. She attempted to answer the question of whether microinsurance really can help reduce poverty. The main findings of her research are that people’s confidence in insurance as a product is key to inducing them to take out a policy, and that microinsurance can actually help reduce poverty. Karlijn Morsink did fieldwork in India, Kenya, the Philippines and Ethiopia. She defended her dissertation on 14 September at the Institute for Innovation and Governance Studies.

“Microinsurance is important for the poorest of the poor, particularly because existing safety nets fail to protect them sufficiently. The insurance provides stability following a natural disaster such as s typhoon. Microinsurance is normal insurance, but tailored to the specific needs of poor people in developing countries. This means that the premium is generally low, and that the policies are offered through local networks. The settlement paid out following a disaster ensures that people can repair their homes without having to sell off their sole cow or other means of production. Their children can continue to go to school, and they do not have to borrow money from family or from a usurer in the village.”

“The research shows that confidence in the insurer, primarily due to good experiences among others in the same village, plays a major role in convincing people to take out microinsurance. Confidence plays such an important role in fact, that it may explain why people who are averse to risk, and who theoretically would be expected to take out insurance, tend not to insure themselves for these very real risks. By providing access to financial services such as microfinance and microinsurance, we are giving poor people in developing countries the opportunity to make their own choices for their future,” asserts Morsink. “It's easy for rich countries to combat poverty through donations, but this rarely leads to sustainable solutions. Public-private partnerships, in which local capacity building is combined with sustainable financial products, may help us devise the solutions we are looking for. Just look at health insurance schemes in many developing countries. Finally, it is important to recognize that microinsurance is not the definitive solution to poverty, just as no single means ever can be! The success of microinsurance lies in the possibilities it offers for risk management both by households and by governments,” says Morsink.

Further details:
The ceremony took place on 14 September at 16:30 in the Waaier Building, Van Berkhoff Hall, on the campus of the University of Twente.