11. Micro-Insurance: Risks

According Robert Holzmann and Steen Jorgensen, “the notion of risk refers to uncertainty or unpredictability that result in welfare losses.” There can be different types of risks ranging from natural, health, social, economic, political and environmental. Bonilla Garcia and J.V. Gruat have broadly classified risks in the following manner:

Idiosyncratic (Individual) Risks: Those risks which make an individual or few people in a community suffer from losses such as death, accident, illness, disability, old age and so on.
Covariate (Aggregate) Risks: Those risks, which make a large number of households, communities, regions or countries, suffer from losses such as natural calamities, disasters, wars, floods, epidemics and so on.

The World Bank’s World Development Report 2000/2001: Attacking Poverty classifies different types of risks as follows:

Natural: Rainfall, Landslide, Volcanic eruption, Earthquake, Flood, Drought and High winds
Health: Illness, Injury, Disability, Old Age, Death and Epidemic
Social: Crime, Domestic violence, Terrorism, Gang activity, Civil strife, War and Social upheaval
Economic: Unemployment, Resettlement, Harvest failure, Changes in food prices, Economic growth/collapse, Hyperinflation, Financial or currency crisis, Technology shock, Terms of trade shock and Transition costs of economic reforms
Political: Riots, Political default on social reforms and Coup d’état
Environment: Pollution, Deforestation and Nuclear disaster