Weathering the storm: The demand for and impact of microinsurance

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Uninsured risk has welfare implications which go well beyond the consequences for short-term consumption and is a cause of persistent poverty of low-income households in developing countries. To cope with shocks, poor households rely on a diversity of strategies but these are often not enough to adequately allocate risk or protect income. These strategies may themselves have costs if they reduce opportunities for future economic growth. Microinsurance has the potential to assist poor people in developing countries to cope with risk and its consequent shocks.

Weather insured savings accounts

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Through a laboratory experiment in India, this paper assesses consumers' relative valuations of savings versus insurance when planning for risky rainfall in an attempt to measure potential demand for a new type of financial product that combines savings and rainfall insurance, the Weather Insured Savings Account (WISA). The study finds out that participants prefer both pure insurance and pure savings to any mixture of the two, and that this preference is most pronounced among those who are more risk averse.

Weather indices for designing microinsurance products for small-holder farmers in the Tropics

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Agriculture is inherently risky. Drought is a particularly troublesome hazard that has a documented adverse impact on agricultural development. A long history of decision-support tools have been developed to try and help farmers or policy makers manage risk. Drought insurance works by encapsulating the best available scientific estimate of drought probability and severity at a site within a single number- the insurance premium, which is offered by insurers to insurable parties in a transparent risk-sharing agreement.

The social dilemma of microinsurance: A framed field experiment on free-riding and coordination in microcredit groups

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This paper analyses free-riding and coordination problems in microinsurance. Authors model demand for health insurance in microcredit groups that typically share risk through joint liability as a social dilemma. Less risk averse clients are tempted to free-ride and forgo individual insurance while the more risk averse face a coordination problem. Group insurance binds both types to the social optimum. Microinsurance games played with microcredit clients in Tanzania confirm the free-riding hypothesis and demonstrate limited coordination failures under individual insurance.

The Social Dilemma of Microinsurance: A Framed Field Experiment on Free-Riding and Coordination

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This paper analyses free-riding and coordination problems in microinsurance. The proposition is that the demand for insurance suffers from a social dilemma when formal insurance is introduced in existing risk-sharing networks. Less risk averse individuals offering welfare-improving insurance are tempted to free-ride on the enrolment of their network members while the more risk averse may fail to coordinate. This results in suboptimal demand. Group insurance binds both types to the social optimum.

The Potential of Microinsurance

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Throughout the world's emerging markets, insurers increasingly are inclined to include microinsurance in their long-term strategies. This special report provides an overview of this type of business, describes the typical participants and discusses its potential. Microinsurance serves to improve coverage of basic human necessities in terms of business lines such as health, life, funeral, property and agriculture. Such micro policies transfer risk from low-income individuals, who do not have access to traditional insurance, to a group.

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