A study of buying behavior for microinsurance

Abstract

The poor are much more exposed to the dangers from their surroundings. They live in unhealthy environment where even proper sanitation is not available. Natural calamities like floods, drought, earth quake etc. hit them the hardest. An unfortunate event like Illness or death in the family can change the living standard of the poor for the worse. Cost of medical care being prohibitive, s/he consumes lots of (already diminished) resources from the family. Since they do not have adequate savings, such an episode drives them to either sell their assets or borrow money from local money lenders at high interest rates. According to World Health Organization report (2006), out of total health expenditure in India, 73% happens through out-of pocket spending. This is a very precarious situation as it exposes the poor household to sudden spurt in unplanned and unexpected medical expenses. So, how do we ensure that the poor, or the excluded face this ever threatening risk to their lives and livelihood? Insurance as a concept was introduced in 19th century to do exactly that - protect the poor! But over a period of time, it became a financial tool for the rich. Affordability being one of the prime reason but exposure and access being other important reason for low penetration in this segment. The poor are still facing the harsh economic conditions. Traditional insurance companies do not typically approach this segment because of their own rigidity. Microinsurance, on the other hand is proposed to be The Solution to this problem. Microinsurance is a low-premium-low-claim insurance plan meant for low income group targeted at rural or social sectors. In microinsurance, the premium (and consequently, the claim) has got to be low by design as it is targeting that particular segment. The potential of microinsurance to reduce the risks in the life of the poor will go a long way to establish an equitable society. They will be freed to use their resources for better purposes.