Microinsurance: facilitating risk protection for the poor

Abstract

The Philippine microfinance industry has developed over the years. From only a few large microfinance institutions (MFIs) with less than a million clients in the late ’90s,the industry has now more than 2,000 MFIs with almost 7 million clients. Large commercial banks, which used to ignore the low-income sector as potential clients of financial services, have recently been providing wholesale funds to retail microfinance institutions.

With the development of the microfinance industry in the Philippines, MFIs face a growing demand for financial products and services, including risk protection services. Demand for micro-insurance products (i.e., insurance products for the poor) is growing in view of continuing risks to household welfare and the seeming inability of the government to address this issue. The MFIs have realized the need to assist their clients, consisting mostly of poor households and microenterprises, with financial products that will help them manage those risks. A number of those MFIs have started with informal means of risk protection; some have linked up with commercial insurance companies to deliver insurance products to their clientele and still others have established their own mutual benefit associations (MBAs).

Recognizing this need and having learned that provision of financial services to the poor can best be done by the private sector, the government in January 2010 launched the National Strategy for Microinsurance and the Regulatory Framework for Microinsurance. These documents, which provide the pillars for the development of the microinsurance market in the Philippines, called for greater role of the private sector in the provision of microinsurance products and services.

Given the need to protect the poor from risks, the paper looks at the roles of both government and the private sector in providing risk protection to the poor.

Classification-JEL: G22