Microinsurance is a key component in the financial services package for people at the bottom of the economic pyramid. The poor face more risks than the well-off. These risks are of two types - idiosyncratic (specific to the household) and covariate (common, e.g., drought, epidemic, etc.). The prevalent forms of risk management (in kind savings, self-insurance, mutual insurance) which were appropriate earlier are no longer adequate to serve the risks of this group.
Consultative Group to Assist the Poor (CGAP) working group on microinsurance defines Microinsurance as the protection of low-income people against specific perils in exchange for regular premium payments proportionate to the likelihood and cost of the risk involved. Low-income people can use microinsurance, where it is available, as one of the several tools (specifically designed for this market in terms of premiums, terms, coverage and delivery) to manage their risks.
