Providing protection from natural disaters with microinsurance

With the number of natural disasters increasing across the globe, microinsurance programs have begun to reach out to help the poor. Microinsurance sells low cost insurance that those who only make a dollar a day can afford. Still in its infancy, microinsurance still has a lot of people to reach, and has been met with a lot of skepticism by those who are approached for policies.

From the Guardian, writer Annie Kelly introduces us to the concept of microinsurance.

Microinsurance, low-cost insurance policies that cover the lives, health, crops and property of the most vulnerable, are being seen as a central way of providing social protection to the increasing numbers of people affected by natural disasters such as hurricanes, flooding and drought.

A recent report by the German insurance giant Munich Re calculated that 2010 was the second worst year for disasters since 1980. It reported that 950 global catastrophes had amounted to overall losses of around $130bn. Of this, only around $37bn was insured. For example, only 1% of the $14bn of property damage caused by Haiti's massive earthquake was covered by insurance.

At the Bonn climate change talks in 2008, microinsurance was touted as a central component of climate change adaptation measures in Africa, Asia and Latin America.

Yet while microinsurance has seen increasing success in Africa and Asia, it has so far failed to make significant inroads into the Latin American market. But this could be changing.

The Colombian offices of insurance companies such as Liberty and ESA have told journalists that they are seeing a spike in the number of people taking out microinsurance policies. ESA says it is selling more than 60,000 microinsurance policies a month, mostly health , for around $1 a month.

There are hopes that microinsurance could offer some form of social protection in other countries across the region. A government-backed scheme run by Peruvian insurance company La Positiva targets over one-third of Peru's 9 million rural population, offering micro-life insurance at a marginal cost of the income generated by a family's annual harvest.

The cost of the insurance, which is between $0.5 and $2 a month, is added to the water irrigation price already paid by the farmers. Brazil and Mexico have also been identified as huge markets for growth, with millions of potential customers.