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Microinsurance

Microinsurance products are essentially specialized insurance contracts designed for the poor, particularly the poor in developing countries. These contracts need to recognize the difficulties of defining and measuring risks in this context, the variety of risks faced on a daily basis, problems collecting premia, and the lack of trust in institutions. Since an insurance contract amounts to a payment of a premium up front, in the subjective expectation of some payments back in the event of some future event, it immediately puts demands on analysts to know a lot about the insured. What are their risk attitudes? What are their subjective beliefs? What are their discount rates? And what other risks might be correlated with the risk covered in the contract? In one sense these are the very same questions that have to be answered in general when designing insurance products, but they become particularly important for designing products for the fragile and vulnerable environment of the developing country poor.

In fact, a core objective of this research is to develop the evaluation of whether insurance products are good or bad for the insured. One cannot just look at the “return on investment” to purchasing a product to determine if it was a smart investment. Nor can one just look at “take up” as a simple measure of the success of a product from the perspective of the insured. Instead, one has to know what the expected present value of the utility of the product was, when the decision was made to purchase. This is a major challenge in the evaluation of all insurance products, not just insurance products for the poor. Insights from the evaluation of insurance products can, of course, immediately feed into the design of more effective and profitable products.

CEAR has organized specialist workshops in many of these areas, to lay the foundation for a direct academic assault on this problem. Several workshops have examined in depth the econometric issues involved in measuring risk attitudes. One workshop was focused just on the manner in which subjective beliefs could be measured. One conference was devoted just to measuring risk and time preferences together.

In addition, CEAR has arranged workshops and co-sponsored conferences directly on the topic of insurance for the poor. One workshop brought leading researchers together from around the world to present their ideas. And CEAR has entered into a formal arrangement with the Munich Re Foundation to organize the academic track at their annual Microinsurance Conference. Held in Dakar in 2009, Manila in 2010, Rio de Janeiro in 2011, Dar Es Salaam in 2012, and planned for Jakarta in 2013, this event brings together hundreds of practitioners and researchers. It is the focal point for all of the NGOs active in this area, policy makers charged with developing schemes of this kind, and academic researchers. CEAR proposed using targeted academic workshops to maintain the network of research in the area, and then using the annual conference to provide a bridge to what is actually evolving in the field.