Why do the poor need insurance?

2.4 billion people around the world live on $2 a day or less. They face daily hardships like poor nutrition, short life expectancy, poor education, and substandard housing.

In areas where HIV/Aids and malaria are prevalent, they often cannot afford the healthcare they desperately need. When there is a death in the family, the cost of a funeral can amount to several months' wages. In rural areas, drought can cause crop failure that brings starvation and even death.

It is estimated that only eighty million of the poor are now covered by some form of micro insurance. Most remain without access to this critical financial service. In India and China, where organisations are estimated to serve nearly 30 million micro insurance clients each, the percentage of poor lives insured hovers below 3%. In Africa this figure is much lower - just 0.3% of the continent's poor are insured. According to recent data, in 23 of the poorest 100 countries in the world, there is currently no identified micro insurance activity, representing an unserved population of 370 million.

It comes as a surprise to many people, but microinsurance is an important tool in the alleviation of poverty. Without access to appropriate low-cost insurance products, the poor are without a safety net. And a single setback can cost them what little savings or capital they have.

Yet today, 97% of the world's poor are excluded from formal insurance. They do seek ways to mitigate risk, but these are often informal and are not sustainable or scaleable. With microinsurance, the poor can mitigate those risks that would otherwise cause them to slide back into the poverty they seek to escape. Microinsurance seeks to provide those on the lowest incomes with the insurance products they need and demand.

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