Jan. 19, 2010
Renee DeGross Valdes, 404-413-1353
ATLANTA - Many families in third world countries build their lives around farming and livestock. When disaster strikes, it can devastate progress. Insurance expert Richard Phillips sees this firsthand.
For the past four years, Phillips - chair of the nationally ranked Risk Management and Insurance Department at Georgia State University's Robinson College of Business - has been on a mission to bring attention to and raise awareness of a solution to this problem - microinsurance, or inexpensive insurance, for the poor. Phillips believes microinsurance can help reduce poverty both nationally and internationally.
"Microinsurance is a growing movement," said Phillips. "When I first learned of this concept, I was struck by the potential power for the poor to take control of their own destiny."
More than 2.4 billion people in the world earn $2 a day or less. Right now, too few impoverished people have access to formal insurance that protects them against risk that could include crop damage, death of a family breadwinner, a severe or chronic illness or loss of an asset such as housing or a cow.
Insurers don't fully grasp how to help to the poor because mainstream insurance is prohibitively expensive. There's also not enough academic research available - at least not yet - that can help insurers develop the right kinds of products at the least possible cost for the end user.
The growing popularity of microinsurance stems from the explosion of microfinance, or tiny loans, over the past decade. In other words, now that microfinance has helped so many people around the world, those new micro business owners now need to protect themselves and their assets.
"Poor households are very vulnerable and they're not able to absorb the financial consequences of these shocks," Phillips said. "They lack a safety net and a single setback can push an entire family back down to the bottom rung of the economic ladder."
Phillips is working with the United Nations' International Labour Organization, the Munich Re Foundation, and others, to provide support and to promote the development of microinsurance markets in developing countries.
"The promise of microinsurance is compelling," Phillips said. "Consumers should see real and tangible economic benefits by forming and engaging in insurance markets."
Most recently Phillips, as co-editor of the Journal of Risk and Insurance, worked with Munich Re Foundation to organize an international conference dedicated to bringing people together to better understand the potential of microinsurance. The journal used its reputation as the leading scholarly publication in the field to attract economists from around world to conduct research studying the impact these products are having on people's lives. The research was presented in November at the 5th International Microinsurance Conference in Dakar, Senegal, and will appear in the journal in 2010.
"Despite growing interest, microinsurance is still in the infancy stage of development," Phillips said. "As academics, we can document that microinsurance works and can be a major tool in helping to alleviate poverty."
He added, "Our goal is to make sure the magic of insurance, which we all take for granted in this country, becomes a common tool even for the world's poor."