13. Micro-Insurance: Definition

Insurance is a kind of a financial service whereby clients pay a premium on regular basis in return for reimbursement at higher rate when a risk occurs. In principle, it is one of the risk management tools to counter the losses suffered from a crisis. It is a pool of resources developed by the contributions from many people and benefited by those who are at risk. There are various kinds of insurance services from life, health, cars, electronic equipment etc.

Micro-insurance, on the other hand, is also an insurance service provided to low-income people, designed and distributed in accordance to their needs and capacities. According to ILO, it is an element of social protection. It is referred to as a tool in a collective toolbox to help provide social protection to the poor.

Micro-insurance is defined as the pooling of resources among people that are excluded from formal social protection mechanisms and that usually belong to the same community (village, cooperative, trade union, micro-finance institution etc) to share risks (Stalpers, I., Dahal, G. and Upadhyaya, U. Training Toolkit on Gender-sensitive Health Micro-Insurance Schemes. ILO, Nepal. 2004).

Arguments in favor of why micro-insurance should be provided to the poor:

The poor are bankable and can make small contributions towards a pool of resources
The success of micro-finance movements in developing countries
The risks faced by the poor can be insured
Affordable and tailor-made insurance products can be developed and marketed