Evidence Base Report: Microinsurance for Orphans and Vulnerable Children
Although governments offer a range of social protection mechanisms, many OVC households remain vulnerable due to additional social, economic and psychological factors. Furthermore, social insurance, a systematic framework that allows a group of individuals to collectively spread their risk (Pitzer 2003, 3), typically excludes low-income households employed in the informal sector―leaving them vulnerable to shocks and prone to make risk-averse decisions that lead to sub-optimal development outcomes. Microinsurance, defined as low-premium insurance intended for the poor in developing countries, is a market-based solution and potential complement to traditional social protection interventions to address the vulnerabilities of the OVC population. Microinsurance, as a social protection instrument, can work independently or in tandem with existing social protection programs―as a complement to other government provided services and products.
The impacts of HIV on households are well-documented in the literature: OVC households are often impoverished and the children experience emotional suffering, neglect, and increased responsibility. Moreover, the household pattern of consumption is changed to reflect the increased need in health care which leaves fewer resources to attend to the child’s basic needs. Based on these findings, health, life, and burial insurance are identified as the most relevant microinsurance products to meet the specific needs OVC households and ensure increased social protection for orphans and vulnerable children.i Despite the positive outcomes associated with microinsurance, it has a number of limitations as a social protection instrument, which include: (i) design challenges in providing cover for specific vulnerabilities faced by HIV-affected households; (ii) sustainability challenges for the market mechanism to extend cover to OVC households with limited ability to pay premiums; (iii) distribution challenges in reaching and targeting OVC households; and (iv) microinsurance is suitable to cover some, but not all risks, leaving OVC households exposed to risks unaddressed by microinsurance products. Furthermore, insurance by its nature can focus only on reducing vulnerability in the face of risk events and is not a direct instrument to alleviate chronic poverty by addressing the underlying causes of vulnerability. Although redistributive in terms of risk, microinsurance schemes do not directly redistribute wealth.
Distribution is important to determining the reach and viability of microinsurance, and the delivery of microinsurance products and services, which requires a number of different actors in the value chain across a variety of distribution channels, deserves specific mention. Microinsurance distribution targeted at orphans and vulnerable children could potentially benefit from being linked to existing social protection networks and structures in terms of mapping, targeting, and/or distribution. Moreover, because of the limited commercial viability of schemes targeted towards low-income vulnerable households, OVC-targeted microinsurance could benefit from public-private partnerships. Innovative solutions with regard to viability and funding are a key step forward in designing microinsurance schemes that provide sustainable support to OVC populations where offerings such as direct subsidies and/or premium subsidies could be possible choices. However, the state of evidence on the scope for leveraging such structures for OVC populations and the challenges of these offerings present severe limitations.
The report identifies several knowledge gaps in the literature that form the base for the series of four technical guidance briefs (TGBs) to complement this report. These guidance briefs will address or provide:
1) A full analysis of the role of microinsurance in a larger OVC social protection landscape
2) The existing state of health microinsurance and how health microinsurance can target orphans and vulnerable children
3) The potential of linking microinsurance benefits to education by means of savings-linked microinsurance to benefit orphans and vulnerable children
4) The role of public-private partnerships in microinsurance and how these partnerships can be tailored to the needs of orphans and vulnerable children
Microinsurance for orphans and vulnerable children is an under-researched field but the possible benefits and potential outlined in this report justify further studies to explore microinsurance’s full potential to benefit OVC households.