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Ph.D. Avanesova N.E.
Kharkov National university of Building and
Architecture, Ukraine
LOW-INCOME HOUSEHOLDS’ NEEDS FOR MICROINSURANCE IN
UKRAINE
Microinsurance is a term increasingly used
to refer to insurance characterized by low premium and low caps or low coverage
limits, sold as part of atypical risk-pooling and marketing arrangements, and
designed to service low-income people and businesses not served by typical
social or commercial insurance schemes. The institutions or set of institutions
implementing microinsurance are commonly referred to as a microinsurance
scheme. [2]
A
microinsurance scheme is a scheme that uses, among others, an insurance
mechanism whose beneficiaries are (at least in part) people excluded from
formal social protection schemes, in particular informal economy workers and
their families. [] Membership is not compulsory
(but can be automatic), and members pay, at least in part, the necessary
contributions in order to cover benefits.
Poverty
is high in Ukraine but compared to other transition countries low-income
households in Ukraine are relatively less vulnerable. A majority of the
low-income people in Ukraine are salaried workers. Self-employed people are
less poor and probably more vulnerable as they do not have access to social
protection provided by bigger employers. [5]Two
other important differences between Ukraine and its neighbors is that rural
household’s bear lower poverty risk compared with urban dwellers, and that
elderly people are more vulnerable due to inefficiencies of the pension system.
Therefore, elderly people and those living in secondary towns have the poorest
risk management capacities.
A
household includes all the persons who occupy a housing unit. A housing unit is
a house, an apartment, a mobile home, a group of rooms, or a single room that
is occupied (or if vacant, is intended for occupancy) as separate living
quarters. [4]
The occupants may be a single family, one person living alone, two or more
families living together, or any other group of related or unrelated persons
who share living arrangements. (People not living in households are classified
as living in group quarters.)
Despite
limited vulnerability, the low-income population is in need of additional risk
management options. [3]Risks
like bigger health crises, accidents leading to disability and property losses
put a very significant pressure on the households and are perceived as the most
burdensome (Figure A).
Accidents
leading to disability (for self-employed
only) Theft of business
assets (fixed or working
capital) (for self-employed only) Business risks (loan repayment, instability of prices, unforeseen investments) Theft of household
durables (more important in
rural areas) Life
cycle events (constructing a house and higher education)
Figure
A: Importance of risks for low-income population in Ukraine.
Even
if large numbers of low-income households have access to low-stress coping
mechanisms they are not effective enough to cover fully needs for lump sums to
respond to the risks. [4]The
menu of coping mechanisms is narrow and the social protection system is
inefficient. It can significantly increase vulnerability of low-income
households in the longer term.
Health,
disability and life with long-term savings microinsurance services promise to
fill this risk-management gap, which is an issue for almost half of the
population of Ukraine. [5]Especially,
health and disability insurance covering hospitalization costs and providing
some funds to survive in the periods with lower work ability will contribute significantly
to improve risk-management capacities of low-income households.
Property
microinsurance is rather more important for medium and high-income households
given their interest to protect their valuable assets. Needs for better
mechanisms to cope with life risks are not very high, however, life insurance
with long-term savings is in line with a very positive attitude to saving among
Ukrainians. Therefore, it can also play an important development role in
building assets and complementing inefficient pension system. [4]
Overall, there are many positive signs that should
ease launching new microinsurance products. Ukrainians are proactive financial planners, and they have positive attitudes towards savings and more than 60% of populations declare that they save. A general
awareness of insurance is almost universal. [4,5]Even
though usage is still at low
levels (34% of households owned a voluntary insurance policy in the last 15
years) the knowledge of
insurance should not be a major issue (only 17% of the total populations do not understand the insurance concept). Moreover, 30% of
Ukrainians are enthusiastic about insurance, strongly believing that insurance is socially beneficial. The biggest challenge is that those positive signs can
be mostly observed among medium and high income households, who are not necessarily the core target group for
microinsurance. [2]Among
70% of households who are
skeptical about insurance, low-income households are overrepresented. In this
group there is a profound
distrust in insurance sector and insurance companies (almost 80% of the
population) mostly due to poor
performance of current property insurance offerings, which accounts of more
than 60% of the total volume
of insurance policies on the market. Additionally, skeptical households think
that insurance is expensive,
do not see benefits of insurance (think that they do not need it), know little
about it or live far from
insurance agents.
Besides an obvious need for microinsurance product
innovation, two strategies seem to be important from the market perspective to
develop market for microinsurance in Ukraine and reach out low-income
households. [3]
These are: 1) a reform of the supply system that should aim at building
insurance system reliability and professionalism, and 2) insurance education
provision in the goals of building necessary knowledge and skills allowing
low-income households to see the benefits of insurance and be able to make the
right choice.
Last but not least, there is not a big need for
redistribution policies to facilitate access to microinsurance for those who
cannot afford it at the moment. [3]Thus,
private insurance companies can have a significant contribution to improving
social risk-management in Ukraine within the market enablement and development
zones. Depending on the product 8-13% of households cannot afford to pay for
microinsurance. These are the households that live on the lowest incomes. Most
of these households are located in rural areas. They are
rather cash-poor and live from subsistence farming, which in Ukrainian context
is not a synonym of high vulnerability.
References
1. H. Alderman and C. Paxson, (1993) Do the poor insure? A synthesis of the
literature on risk and consumption in developing countries,