Efficacy of Microinsurance in Northern India

Abstract

People under poverty generally live in the environment which is highly risky. Having newlinelower resource base to cope up, they are often forced to bear the adverse consequences of newlinenumber of perils like, death, disability, property loss, and illness. Not only the exposure to these risks results in adverse financial consequences, but poor households being newlinevulnerable, also suffer from the continuing uncertainty about whether and when a loss might occur, as this pressing apprehension restricts the poor to grab the income newlinegenerating opportunities that might reduce poverty. Of all the risks facing poor newlinehouseholds, health risks probably pose the greatest threat to their lives and livelihoods. newlineHealth shocks have a direct bearing on human capital formation. It thrusts health newlineexpenditure on a poor household precisely at a time when they can ill-afford it due to income shortfall resulting from the shock. Moreover, the uncertainty of the timings of illness and unpredictability of its costs make financial provision for illness difficult for households receiving low and irregular income. Poor households not having any other newlineoption, are forced to bear the health expenditure, which often turns to be catastrophic to it, and thus is a significantly contributing factor to its poverty. Risk that is uninsured newlineleaves poor household to serious losses. It compels a poor household to adopt costlier newlinestrategies, which sometimes results in losing a source of income as well. Although poor households have informal ways of risk management, but those generally result in newlineinsufficient protection. Informal strategies generally cover a small portion of loss, so the newlinepoor have to arrange support from variety of sources. Even then, aggregate informal newlinestrategies does not stand up well against series of perils, which unfortunately is a newlinesituation often experienced by the poor. Microinsurance provides a formal protective newlinemechanism that helps poor to cope up with the adverse consequences of the shock. Like newlineany insurance, microinsurance can cover....