Four billion people across the globe subsist on less than $2 a day; among them, fewer than 10 million have access to insurance for what little property they have. By some estimates, only 1% to 3% of families in developing-world countries carry any insurance at all.
The global poor are largely farmers; their prosperity and livelihoods are tied directly to the land. Natural disasters can be doubly catastrophic for these communities, so they’re increasingly turning to microinsurance plans to protect the value of their livestock, crops, and other property in the event of disaster, or to pay for health care, according to the Worldwatch Institute’s State of the World 2007.
Similar to a microcredit scheme, microinsurance allows individuals to pool risk with one another, often at the community level, and often through existing insurance or microfinance companies. The number of microinsurance plans, and the number of people served by them, has doubled every year for the past 10 years. Some of these plans cover more than a million people, says international insurance expert Craig Churchill.
In 2005, the Indian city of Bhuj, near the Pakistan border, was hit by a 6.9 magnitude earthquake that caused significant human and economic loss. Now, close to 12% of the people in Bhuj have insurance coverage, thanks partly to the efforts of groups like the Disaster Mitigation Institute.
“Communities know how to reduce risks,” says Mihir Bhatt, an Ashoka fellow affiliated with the institute. “They learn from their losses but cannot always use this knowledge effectively. We facilitate such learning, . . . try to make these insights available from one community to another, from one humanitarian effort to the next, or from one disaster to another.” Most of the policyholders pay premiums of less than $2 per year.
While many Westerners perceive that people in the developing world have no desire for insurance coverage, or that poor people, in particular, have no interest in paying to insure property of little monetary value, that view isn’t accurate, according to Christine Wamsler of Lund University in Sweden. Through her interviews with urban slum dwellers in El Salvador, Lund discovered that the poor have a number of strategies for coping with and mitigating disaster, including “self-insurance,” which could mean acquiring construction materials in bulk before a disaster or joining religious groups that offer community emergency funds.
“Most intriguingly, the research revealed that households spend an average of 9.2% (ranging from 0 to 75%) of their income on reducing disaster risk (about $26 out of an average monthly income of $284). This is in addition to construction materials that are obtained for free, family members’ free labor, the opportunity costs of the considerable time spent on risk reduction, and the negative impacts of some coping strategies (such as high interest paid to informal money lenders),” Lund writes.
Government involvement, monitoring, and support of reputable microinsurance schemes could help poor people avoid high-interest lenders, and thus save money.
Indian laborers in the city of Bhuj survey their work on the construction site of an earthquake-proof house. In 2001, the owner’s former home was destroyed by a 6.9 magnitude earthquake in the western Indian state of Gujarat, which claimed the lives of more than 25,000 people and left millions homeless. The devastated state came back to its feet with large reconstruction projects, relocation of people, and improvements to infrastructure. Almost 12% of the residents of Bhuj now have insurance coverage through microinsurance.
Originally published in THE FUTURIST, May-June 2007