Micro-insurance

The world is abuzz about micr0-finance, especially micro-loan ever since the publicized success of the Grameen Foundation. If you are a Malaysian, do you know about the Malaysian government's micro-finance effort called Amanah Ikhtiar Malaysia (AIM)? Unfortunately it is heavily biased as per the NEP policy: loans are open to only bumiputra.

An interesting off-shoot is micro-insurance. What is really interesting is the fact that it is not taking off rapidly in third-world countries.

Think about it: why would insurance fail in the third world country? Though the article from Time magazine says a lot about trusting another company and refusing to accept risk, I think it goes beyond that.

The culture in third-world country, specifically in areas of extreme poverty such as Sub-Saharan Africa, certain locations in South America and South Asia tend to have a very different culture from developed nations. There are a lot more direct inter-dependency, strong social bonds and trust among "real" people compared with the pronounced individualism and laissez-faire environment of the West. In such a culture, why would one depend on a faceless corporation when one can share the gains and losses directly with one's peer? Let's say if there is a house that is razed by fire, the community will spring into action to provide support to the affected families. From a risk management perspective, there is "built-in" risk mitigation in the social fabric.

Secondly, these countries has such a long history of an agrarian and/or livestock culture, and entrenched beliefs of "fate" or unmutable elements especially the weather. One is expecting them to embrace a whole different philosophy to accept the concept of insurance and avoiding catatrophe from natural risk factors.

As a result of the recent world economic recession, there is widespread believes that certain financial mechanism has distorted the risk/reward picture, instead of being the "oil" that transfers risks to the party best able to accept it. From an Asian perspective, I have always found the "insurance" concept to be antithetical to the local believes of social harmony above individual pursuits. As a result, insurance, especially life and medical insurance draws family members apart further when there is even less inter-dependence.