Many risks can be insured by microinsurance, even if some of them are more complex and thus harder to cover than others.
Levels of complexity of different microinsurance products:
Microinsurance is particularly appropriate for microeconomic shocks that affect individuals or households and are linked to unpredictable personal events, such as the death of a member of the household, a damage affecting the house (natural disaster excepted) or goods (professional of private), a disease (pandemic excepted), accidents, operational loss in the micro-company, etc.
Indeed, events of that kind induce an unpredicted need for funding that is higher than what the households owns. Savings and credits are usually not very helpful in those situations, especially if the incidents are repeated or substantial.
Table showing the major unpredictable personal events:
Mesoeconomic shocks: can hit groups of households, a whole community or a whole village; microinsurance is therefore not as easy to apply. Such shocks are said to be covariant, i.e. they are common to all households within a given group. They include natural, technological (like India’s Bhopal disaster in 1994) disasters, or social risks (wars, riots, consecutive fires), epidemics, other major events causing substantial and simultaneous losses in a large part of the population. Reinsurance is the main way of protecting oneself against this type of events as it enables microinsurers to provide additional coverage.
Macroeconomic shocks: beyond the reach of microinsurers as they happen nationally or internationally. The solution can only be provided by national or international instances, or in some cases by financial markets (weather derivatives).
However, many studies show that microeconomic shocks are really the main factor impacting an individual’s income.
Source: Text based on Dossier thématique Micro-assurance ©2007, www.lamicrofinance.org