Subsidising Inclusive Insurance to Reduce Poverty

Contr'o, Jos'e Miguel Flores; Henshaw, Kira; Loke, Sooie-Hoe; Arnold, S'everine; Constantinescu, Corina

In this article, we consider a compound Poisson-type model for households' capital. Using risk theory techniques, we determine the probability of a household falling under the poverty line. Microinsurance is then introduced to analyse its impact as an insurance solution for the lower income class. Our results validate those previously obtained with this type of model, showing that microinsurance alone is not sufficient to reduce the probability of falling into the area of poverty for specific groups of people, since premium payments constrain households' capital growth. This indicates the need for additional aid particularly from the government. As such, we propose several premium subsidy strategies and discuss the role of government in subsidising microinsurance to help reduce poverty.