1 Insurance for the Poor?

Uninsured risk has substantial welfare costs, not just in the short run, but also in terms of perpetuating poverty. This paper discusses the scope for extending insurance to the poor in LAC countries. It is argued that insurance provision to the poor could play an important role in a comprehensive system of protection against risk, including other ex-ante measures such as promoting credit and savings as insurance, as well as a credible overall ex-post safety net. Insurance provision is best promoted via a partner-agent model, in which a local finance institution with close links to relatively poor communities teams up with an established insurer to deliver low cost, tailored products, and possible products include life, health, property and weather insurance. An essential role of the government would be to promote insurance provision to the poor by a relevant regulatory framework favouring MFIs within a partner-agent setup, and to provide overall credibility to the overall system of social protection. The paper also argues for the involvement of local indigenous risk-sharing and finance institutions as intermediaries to maximise the ability to reach the poor and the overall welfare benefits. This paper has been prepared for the Inter-American Development Bank. Extensive assistance has been provided by Tessa Bold and Cesar Calvo, for which I am most grateful. I also would like to thank Luis Tejerina for insightful comments.