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THE OPPORTUNITIES AND CHALLENGES OF MICROINSURANCE

Keywords: microinsurance , microfinance , low-income , direct sales , performance

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Abstract:

Microinsurance is a term increasingly used to refer to insurance characterized by low premium and low caps or low coverage limits, sold as part of a typical risk-pooling and marketing arrangements, and designed to service low-income people and businesses not served by typical social or commercial insurance schemes. As a relatively new field, few studies evaluating the impact of microinsurance projects exist. Of these, even fewer have a rigorous methodology leading to reliable results. Our research aimed to: - examine the viability of microinsurance as a mechanism of risk transfer and tool for risk management in developing countries; - provide a state of the art analysis of microinsurance for a better understanding of currently operational microinsurance schemes; - reflect on the opportunities and challenges of microinsurance in developing countries, highlighting both the potential benefits and limitations of microinsurance as an instrument for transferring risk; - consider the interests and perspectives of different stakeholders and the incentives and disincentives for participating and investing in a micro-insurance scheme; - enhance dialogue and collaboration on this topic between and within the commercial insurance sector and the disaster risk reduction communities; - assess the opportunity of introducing microinsurance in Romania. Reflecting on the opportunities and challenges of introducing microinsurance in Romania, there is absolutely necessary to understand both the supply side (current insurance market) and the demand side (risks faced by low-income persons and the coping strategies used to manage these risks). The majority of the primary research was conducted on-site in Romania, in Oradea and its environs, during the month of December 2010. Qualitative research techniques were utilized, including focus group discussions (FGD) and guided individual interviews with members of both the public and private sector, as well as with international non-governmental organizations, such as the World Bank, and IMF. The research revealed the main risks faced by low-income households, and the fact that microinsurance is a mostly unknown concept in Romania. There is a clear need and demand for microinsurance in Romania. The potential market is estimated to include approximately 4.3 million persons in 2008.

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