Insurance for the Poor

Households in developing countries are exposed to high risks, with important consequences on their welfare. They range from individual-specific (illness, theft or unemployment), to economy-wide risks (drought, recession, etc.). It has long been acknowledged that these shocks have important implications, not least for the poor, including short-term effects on consump-tion and nutrition, resulting in calls for and the establishment of safety nets or other social secu-rity mechanisms. This paper goes beyond this view by arguing, first, that the costs related to these risks are much higher than a simple con-sideration of short-term costs, and secondly, that expanding insurance provision for the poor could be an important instrument with substan-tial long-term welfare benefits. Most impor-tantly, this paper discusses the scope and prob-lems related to the expansion of insurance mechanisms and products, with a focus on Latin America, starting from a consideration of how risk affects the poor and the ways in which they respond to it. The paper discusses the most promising products, institutional setup and the required regulatory framework to successfully expand insurance for the poor. http://www.iadb.org/sds/doc/Insurance_for_the_Poor.pdf