TopicTakeUp ™

It is the obligation of everyone in the more affluent parts of the world, in accordance with their personal circumstances, to help those living in poverty. Traditionally, this has been done by government-to-government aid or using non-governmental organizations (NGO) to assist those in extreme poverty. Over the last few years, a new option for helping has emerged.

Microinsurance — defined as a system of insurance with benefits and premiums commensurate with the financial circumstances of its customers — can charge very low premiums to deliver a more limited insurance product that matches the wealth level of the relevant area. Ideally, this puts a safety net under impoverished people to prevent them from falling into extreme poverty. In countries such as Peru, Kenya, and India, the use of microinsurance has been revolutionary but has had a difficult time reaching its full potential. One of the largest problems it faces has been the level of policy cancellation due to non-payment of premiums. This can happen for several reasons — loss of a job, unstable housing, a lack of understanding of the benefit of insurance, etc. This presents an opportunity for donors in the developed world to help.

The first is by reaching out to an insurance company and having them review their list of policyholders who are delinquent in premium payment but still in a grace period before full cancellation. After randomly selecting from these overdue policyholders, donations are given to bring the chosen policyholder up to date. Notice is then given to both the donor and the policyholder of the transaction that, in a sense, created a “foster-policy” to continue coverage. The second is by engaging with a non-governmental organization (NGO) to inquire which of their clients need insurance but are unable to afford premium payments. By again utilizing a random selection process, foster-policies are created to extend coverage to the recipient, and notice is given to both the donor and the insured party accordingly.

This process has an individual in the developed world directly assist an individual in the developing world. It adds a personal dimension to the transaction so that the donor and recipient have a direct relationship. Through this process, the insurance company benefits by increased income, the policyholder benefits by the continuation of coverage, and the developing economy benefits from the influx of capital from donations from the developed world.

The use of foster-policies addresses both inequality and poverty. By helping to stabilize those who have emerged from extreme poverty, it decreases the likelihood they will fall back and adds to the likelihood they ideally move from multidimensional poverty into a higher income level, directly helping to reduce income inequality. For the estimated 44% of the world’s population lacking social programs such as disability, unemployment, and old age benefits, foster-policies could be especially beneficial.

To achieve its potential, foster-policies would need to be facilitated by larger social mechanisms. Recipient insurance companies would need to come on board and set a clear, user-friendly way to donate — ideally on their website’s home page. Governments could give tax incentives to donors. Technology could help by making donations easier, both on insurer websites and by designated apps. Mutual funds and cryptocurrency could be focused on foster-policy financing. For the present, a list of companies that participate in applying donations to directly help policyholders in need can be found at www.policiesforthepoor.com.

Certainly, it’s an idealistic vision for insurance. In practical terms, though, the effect could be enormous if even a small percentage of potential foster-policies were put in place. By creating a massive person-to-person dynamic in a worldwide effort, foster-policies could help ease inequality and poverty and encourage a greater sense of community on a global basis, a positive the contemporary world greatly needs.