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03/31/14 11:40

Can microinsurance work?

Summary of the 2nd research workshop on Microinsurance / Learning Session “MILK Project”

On March 19, 2014, several of the PhD candidates of the first EBE cohort participated in the 2nd research workshop on Microinsurance (MI) in Munich. It was organized jointly by the Munich Re Foundation and the EBE program at the University of Munich. The workshop serves as a platform that brings together young researchers and practitioners working on a variety of MI-related questions.

The concept of microinsurance is similar to regular insurance except that it specifically targets people with low incomes (typically in developing countries) and thus has to attach great importance to affordability for the clients. The rationale behind the recent push for MI is that poor people, who are particularly vulnerable to adverse shocks such as illness or natural disasters, could potentially benefit greatly from protection in the form of insurance.

However, there are several obstacles and puzzles with regard to microinsurance, some of which the presenters aimed to address. One is that MI take-up can be surprisingly low. Maria Isabel Santana from the University of Mannheim presented experimental evidence from the Philippines that this could partly be due to aversion to contractual non-performance risk. Also with experimental evidence from the Philippines, Shailee Pradhan from the University of St. Gallen made the case that group-based MI can alleviate the well-known problem of moral hazard. Other researchers presented evidence on determinants of willingness to pay (Gilbert Abotisem Abiiro) and on whether microinsurance actually translates into tangible benefits for the clients (Veronika Bertram-Hümmer, Stephan Dietrich). Ron Weber from the University of Göttingen and KfW presented an analysis of data from Madagascar suggesting that (index-based) weather insurance can mitigate credit risk.

Even if some of the alleged benefits of microinsurance are beyond doubt, an essential question remains: is there a business case for microinsurance? In the afternoon session, the directors of the US-based MicroInsurance Center MILK presented their insights and conclusions regarding this question, stressing the importance of scale for profitability.

The presentations stimulated vivid discussions among the participants and with their focus on (quasi-)experimental methods, i.e. methods that plausibly allow for identification of causal effects due to exogeneous variation, fit nicely into the research agenda of the EBE program. The workshop also exemplified how research on topics of wider interest can benefit from the contributions of researchers with diverse backgrounds, such as agricultural science, economics or geography.

For more information on the workshop, the agenda, as well as the individual presentations, please consult the workshop homepage.