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Introduction
The slow process of increasing income and building assets characterizes the road out of poverty. In the precarious world of the poor, a shock such as illness, death of a loved one, fire or theft can rapidly erase hard won gains and make the escape from poverty harder to achieve.
Vulnerability for the poor is an everyday reality. In the words of one microfinance client in the Philippines, “Life for the poor is one long risk”. To cope with shocks, poor people use many different risk management strategies. They draw on informal group-based and self-insurance mechanisms such as borrowing, saving, and drawing down productive and non-productive assets.
A relatively new option for the working poor to manage risk is “Microinsurance”. Microinsurance is the protection of low-income people against specific perils in exchange for premium payments proportionate to the likelihood and cost of the risk involved. Microinsurance reaches a clientele that is difference from that served by insurers. They have fewer assets, their incomes are lower, and their income flows often fluctuate considerably throughout the year. While the shocks that the poor experience may be the same as conventional insurance clients, they are more vulnerable because they have fewer reserves to draw upon. A majority find themselves in a reactive mode, responding after a crisis.
For microinsurance to succeed in Africa, products and services need to respond to the needs of poor people. They must be appropriate in terms of coverage, timeliness, accessibility and affordability. Arriving at the appropriate design requires understanding both the demand for and the supply of microinsurance and how attributes that meet the needs and preferences of the poor can be incorporated into the design of microinsurance products. This paper complements a sister study which examines the lessons from formal institutions currently providing health insurance services.
