Paper

Role of Microinsurance in Disaster Management

Highlighting the role of Microinsurance in disaster management among low income groups in India.
Download 6 pages

This paper highlights the role of microinsurance in mitigating the economic effects of disaster resulting from covariant risks. The emergence of microinsurance has had an important impact in the field of microfinance. The paper focuses on specifically on low-income people who are vulnerable to disasters and, thus, are prone to more risks.It elaborates characteristics of disaster risks:

  • Measurement of the extent of loss is difficult;
  • They affect a large group of population or risk pool at the same time;
  • Informal safety nets usually break-down;
  • Multiple losses affect life, health and property at the same time.

The document further explains the role of microfinance in such situations:

  • Credit - can help reduce risk through income-generation;
  • Savings - can mitigate and cope with risk through consumption smoothing;
  • Insurance - can provide effective safety nets for unpredicted situations and circumstances.

The paper explains some two types of insurance products indemnity based and index based. Further, it highlights the challenges faced in providing microinsurance products to low-income clients in India:

  • Difficulty in product designing due to unavailability of actuarial analysis with MFIs or NGOs;
  • Problem in terms of marketing and sales, as it become difficult to sell insurance products and collect premiums due to lack of awareness;
  • Need for proper distribution channel to efficiently handle small financial transactions in convenient locations and engender trust.

The paper concludes by providing the readers with thoughts whether microinsurance should be considered as panacea for all disaster related losses, role of developed and developing countries, impact of unregulated markets, etc.

About this Publication

By Cheriyan, A., Mukherjee, D. & Haider, I.
Published