Microinsurance: Learning from Insuring the Poor

At Freelancers Union, we’re always looking to learn more about innovative methods of community-building and social justice. Recently, we were fortunate to have health insurance guru Rick Koven, who has worked with Freelancers Union to build our benefits over the last 10 years, give a presentation on international efforts to use microinsurance as a tool to alleviate poverty. A fast-growing field in developing countries, microinsurance is a term used to describe insurance policies that are created to be affordable and valuable for people living in poverty. Rick’s recent work with the Bill & Melinda Gates Foundation has allowed him to study the effects of microinsurance in countries such as India, Colombia, and South Africa. One of microinsurance’s big challenges is to find a model where the numbers really work. When you consider that any kind of insurance involves some administration, the trick is to keep the administration costs very low. Easy enough if you have scale – a large group means the administration eats up less of each dollar – but microinsurance is designed to be small-scale. The Inverted Triangle demonstrates one of microinsurance’s major challenges. The triangle on the left shows the cost breakdown of a regular insurance company, which has a large enough scale to provide a marginal cushion. Microinsurance, however, loses most of its money to administrative costs, as shown by the triangle on the right. During Rick’s talk, we discovered that the concept of insurance dates back to ancient Greece and Rome, where people formed burial societies and other networks that looked a bit like modern life insurance. Though insurance is as old as civilization, we were shocked to learn that about 98% of the world has no insurance at all. Insurance, however, can be a vital way of managing risk by spreading it across a community. In fact, Rick said it’s regarded as part of the “three-legged stool” of financial security and poverty alleviation, along with credit and savings. Since one of our goals is to create services and products that are both member-driven and sustainable, it was inspiring to hear that citizens in impoverished countries have used the power of the group as a source of strength. Similar to members of Freelancers Union, these individuals had to come together to strike a balance between personal interest and the greater good. Ultimately, they were able to form insurance that serves the well-being of the entire community. As we like to say at Freelancers Union: more people, more pull. If you’d like to find out more on this topic, check out these resources: Portfolios of the Poor Allianz Group Microinsurance Report Choosing Health Plans All Together video (photo by Asian Development Bank, via flickr)