Micro-insurance in socio-economic development
A.B.M. Nurul Haq | Tuesday, 5 August 2008
THE role of insurance in combating socio-economic problems has aptly been described in the following words by an Islamic Scholar Dr. Nejatullah Siddique :
"Insurance is a basic human need, as accidents and their financial consequences requiring insurance cover are universal. Sudden death, disability, disease, unemployment, fire, flood, storm, drowning and accidents related to transportation and the financial loss caused by them, are not dependent on one's voluntary actions or occupation etc. Often the victim and his family are reduced to penury. Invariably their economic efficiency is impaired to the extent that it depends on money and property. This reality requires that insurance be treated as a basic human need over a very wide range of human activities and situations".
If the main bread earner of the family dies or becomes disabled due to accident or otherwise, the family of the victim faces financial crisis to the extent of even complete dependence on others, provided there is no financial provision made by the bread-earner during his life time. The victim's dependants then become a burden on society. Alternatively, it can be said that if most of the people are financially secured, then that society is a peaceful society and insurance by providing financial security can help building a peaceful society.
We all know that for economic development capital is needed. To establish industries and do business, trade, construction and other financial activities, money is required. Insurance by virtue of its inherent nature of amassing small savings of the insured people, can supply much needed fund/capital for such economic activities. Thus, insurance plays a vital role in promoting socio-economic development of a country.
Micro-insurance explained: Let us first try to understand what is insurance. The following statement will help us to understand the operation and purpose of insurance.
" 'The loss lighteth rather easily upon many than heavily upon few' is the essential feature; the insured person (known as the insured or the assured) transfers from his own shoulders the financial burden of some potential misfortune to the broader shoulders of the insurer who, in return for agreeing to assume a potential risk of loss, receives a payment known as a premium. The insurers, by collecting a sufficient number of premiums, rely on the probability that only some of the losses they insure against will, in fact, occur within any given period. They calculate, therefore, that they will be left with a profit. The insured, on the other hand, having freed himself by means of insurance from certain types of worry, is better able to risk his capital in trade since he knows that certain fortuitous events which he can't control, such as fire or shipwreck, will not cause him to lose his investment".
("The Teach yourself Book -'Insurance' by H.A.L Cockerell, O.B.E, B.A, FCII".)
The underlying concept of 'insurance' is sharing the sufferings of a few by the greater number of a particular group.
The definition of micro insurance is similar to the concept, as explained above, except that the target market for micro insurance is low income people. Risk itself is not micro rather the capacity to cover the risk is micro. Micro insurance, therefore, may be defined as the protection of low income people against specific perils in exchange for regular payment of premium to a common fund, proportionate to the likelihood and cost of the risk involved and if any predetermined loss is inflicted on anyone of the insured, he/she will be compensated up to a defined amount (sum insured) out of the common fund.
Sometimes confusion arises as to how the poor may have the protection of micro insurance. The answer will vary from country to country, but generally speaking micro-insurance is for those persons who are ignored by mainstream commercial and social insurance schemes, who lacked access to appropriate products, but have the capacity to pay the premium after meeting the bare necessities to survive.
Concept of socio-economic order: Social security is the basic right of every citizen of a country, specially the poor. According to Ibn Taimiyyah, a renowned Islamic thinker and economist of 13th century, "The eradication of poverty is an obligation of state. Redistribution of income between rich and poor to just and equitable levels is a specific responsibility of the state. It is the duty of the ruler to collect money from where it is due and put it where it is just and proper to do so and never to deprive the deserving". (Ibn Taimiyyah, Al- Siyasah al-shariyah P-45).
"The Universal Declaration of Human Rights" says as follows:
"Everyone has the right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing and medical care, and necessary social services, and the right to security in the event of under-employment, sickness, disability, widowed, old age or other lack of livelihood in circumstances beyond his control".
The declaration also demands that member nations secure the recognition and observance of these rights. Again, the Millennium Development Goals (MDGs), set up by the United Nations provide more than 40 quantifiable indicators to assess the progress made towards global economic and social development by 2015. Some major goals are-to reduce the disparity of income amongst the rich and the poor, free them from hunger and starvation, ensure education for boys and girls alike, eliminate gender disparity in primary and secondary education, reduce child mortality rates, empower women and helpreverse the spread of diseases like HIV/AIDS, malaria and other major diseases.
Being Muslims, we may mention here the concept of Islamic socio-economic order for the benefit of readers. Islam preaches social security and economic well-being for all-rich or poor. And most important, the poor segment of society should be protected against various maladies through multiple methods based on the principles of the Holy Quran and Sunnah. In Islamic society, all organisations and institutions including the state cater to the welfare of people, both social and economic.
Many verses of Holy Quran and sayings of Holy Prophet (SAW) can be cited to substantiate this statement. Some of them are as follows:
Hazrat Mohammed (SAW) says:
"It is better for you to leave your offspring wealthy than to leave them poor, asking others for help". (Narrated by Sayid bin Abi-Woqqas (R)].
"He is not a true Muslim who eats his fill when his next door neighbour is hungry" (Bukhari).
The Islamic Society is asked to organise economic mattes in such a way that "wealth does not continue to circulate only among the rich among you". (Al-Quran, 59:7).
According to Islamic tenets, "Mankind is the family of God and the most beloved of them before Him is he who is best to His family. With that 'best character', the members of the community will help develop the best social prosperity based on rights and obligations of brotherhood; and brotherhood demands that the surplus of material wealth earned or acquired has to be distributed to the poor who are below socially desirable minimum standard of living". (Professor M. Railian Sharif, Islamic Economy - Principles and Applications, P-69).
In order to ensure social equality, the Prophet (SAW) stated:
"A Muslim is the brother of another Muslim, he neither wrongs him, nor leaves him without help, nor humiliates him" (Muslim).
Again the Prophet (SAW) stated:
"I swear by Allah, one can not become fully Mumin until he (or she) likes for others whatever he (or she) likes for himself (or herself)" (Bukhad and Muslim).
The system of Al-Zakah has been introduced as one of the pillars of Islam which makes it obligatory on the part of the rich to part with a portion of his wealth for the betterment of the needy, destitute and weak members of society.
In view of the above, the main agenda with all societies is the achievement of social and economic development and alleviation of poverty through application of just principles.
Insurance, being an essential service which a welfare state must make available to its people, especially to the poor people, should be pursued vigorously to mitigate many of the social and economic ills of the people. The latest innovative product micro insurance is one of the latest weapons to combat poverty. Let us see how.
Social welfare through micro insurance: The economically weak sections of society need most the social security which is a major social responsibility in any country. In order to achieve this purpose, it will be fitness of the situation that the suitably designed insurance products should be made available to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons of the country and providing them with adequate financial protection against diseases, death and loss of property by various hazards.
Micro insurance, the by-product of insurance, is a valuable service which should be made available to the have-nots.
Following social services can be fulfilled through micro insurance
l'Health for all' is the slogan in every country desiring to achieve healthy society. Health micro insurance can extend benefit of reducing child mortality, improving maternal health and combating HIV/AlDS, malaria and other diseases. Besides, specially designed health micro insurance schemes can provide immunisation, train birth attendants and also help women to afford transportation and hospitalisation for difficult child birth.
lMicro-insurance schemes can also provide valuable information and resources for risk prevention. By providing education about risks and promoting good, health habits, these schemes can reduce incidents of disease and extend life expectancy
lMicro insurance can also assist in promoting gender equality and empowering women.
lLong term savings through micro insurance enable the poor to accumulate assets that can be used to pay for education, marriage, etc for daughters as well as for sons.
To be continued. The writer is Managing Director, Global Insurance Limited
"Insurance is a basic human need, as accidents and their financial consequences requiring insurance cover are universal. Sudden death, disability, disease, unemployment, fire, flood, storm, drowning and accidents related to transportation and the financial loss caused by them, are not dependent on one's voluntary actions or occupation etc. Often the victim and his family are reduced to penury. Invariably their economic efficiency is impaired to the extent that it depends on money and property. This reality requires that insurance be treated as a basic human need over a very wide range of human activities and situations".
If the main bread earner of the family dies or becomes disabled due to accident or otherwise, the family of the victim faces financial crisis to the extent of even complete dependence on others, provided there is no financial provision made by the bread-earner during his life time. The victim's dependants then become a burden on society. Alternatively, it can be said that if most of the people are financially secured, then that society is a peaceful society and insurance by providing financial security can help building a peaceful society.
We all know that for economic development capital is needed. To establish industries and do business, trade, construction and other financial activities, money is required. Insurance by virtue of its inherent nature of amassing small savings of the insured people, can supply much needed fund/capital for such economic activities. Thus, insurance plays a vital role in promoting socio-economic development of a country.
Micro-insurance explained: Let us first try to understand what is insurance. The following statement will help us to understand the operation and purpose of insurance.
" 'The loss lighteth rather easily upon many than heavily upon few' is the essential feature; the insured person (known as the insured or the assured) transfers from his own shoulders the financial burden of some potential misfortune to the broader shoulders of the insurer who, in return for agreeing to assume a potential risk of loss, receives a payment known as a premium. The insurers, by collecting a sufficient number of premiums, rely on the probability that only some of the losses they insure against will, in fact, occur within any given period. They calculate, therefore, that they will be left with a profit. The insured, on the other hand, having freed himself by means of insurance from certain types of worry, is better able to risk his capital in trade since he knows that certain fortuitous events which he can't control, such as fire or shipwreck, will not cause him to lose his investment".
("The Teach yourself Book -'Insurance' by H.A.L Cockerell, O.B.E, B.A, FCII".)
The underlying concept of 'insurance' is sharing the sufferings of a few by the greater number of a particular group.
The definition of micro insurance is similar to the concept, as explained above, except that the target market for micro insurance is low income people. Risk itself is not micro rather the capacity to cover the risk is micro. Micro insurance, therefore, may be defined as the protection of low income people against specific perils in exchange for regular payment of premium to a common fund, proportionate to the likelihood and cost of the risk involved and if any predetermined loss is inflicted on anyone of the insured, he/she will be compensated up to a defined amount (sum insured) out of the common fund.
Sometimes confusion arises as to how the poor may have the protection of micro insurance. The answer will vary from country to country, but generally speaking micro-insurance is for those persons who are ignored by mainstream commercial and social insurance schemes, who lacked access to appropriate products, but have the capacity to pay the premium after meeting the bare necessities to survive.
Concept of socio-economic order: Social security is the basic right of every citizen of a country, specially the poor. According to Ibn Taimiyyah, a renowned Islamic thinker and economist of 13th century, "The eradication of poverty is an obligation of state. Redistribution of income between rich and poor to just and equitable levels is a specific responsibility of the state. It is the duty of the ruler to collect money from where it is due and put it where it is just and proper to do so and never to deprive the deserving". (Ibn Taimiyyah, Al- Siyasah al-shariyah P-45).
"The Universal Declaration of Human Rights" says as follows:
"Everyone has the right to a standard of living adequate for the health and well-being of himself and his family, including food, clothing, housing and medical care, and necessary social services, and the right to security in the event of under-employment, sickness, disability, widowed, old age or other lack of livelihood in circumstances beyond his control".
The declaration also demands that member nations secure the recognition and observance of these rights. Again, the Millennium Development Goals (MDGs), set up by the United Nations provide more than 40 quantifiable indicators to assess the progress made towards global economic and social development by 2015. Some major goals are-to reduce the disparity of income amongst the rich and the poor, free them from hunger and starvation, ensure education for boys and girls alike, eliminate gender disparity in primary and secondary education, reduce child mortality rates, empower women and helpreverse the spread of diseases like HIV/AIDS, malaria and other major diseases.
Being Muslims, we may mention here the concept of Islamic socio-economic order for the benefit of readers. Islam preaches social security and economic well-being for all-rich or poor. And most important, the poor segment of society should be protected against various maladies through multiple methods based on the principles of the Holy Quran and Sunnah. In Islamic society, all organisations and institutions including the state cater to the welfare of people, both social and economic.
Many verses of Holy Quran and sayings of Holy Prophet (SAW) can be cited to substantiate this statement. Some of them are as follows:
Hazrat Mohammed (SAW) says:
"It is better for you to leave your offspring wealthy than to leave them poor, asking others for help". (Narrated by Sayid bin Abi-Woqqas (R)].
"He is not a true Muslim who eats his fill when his next door neighbour is hungry" (Bukhari).
The Islamic Society is asked to organise economic mattes in such a way that "wealth does not continue to circulate only among the rich among you". (Al-Quran, 59:7).
According to Islamic tenets, "Mankind is the family of God and the most beloved of them before Him is he who is best to His family. With that 'best character', the members of the community will help develop the best social prosperity based on rights and obligations of brotherhood; and brotherhood demands that the surplus of material wealth earned or acquired has to be distributed to the poor who are below socially desirable minimum standard of living". (Professor M. Railian Sharif, Islamic Economy - Principles and Applications, P-69).
In order to ensure social equality, the Prophet (SAW) stated:
"A Muslim is the brother of another Muslim, he neither wrongs him, nor leaves him without help, nor humiliates him" (Muslim).
Again the Prophet (SAW) stated:
"I swear by Allah, one can not become fully Mumin until he (or she) likes for others whatever he (or she) likes for himself (or herself)" (Bukhad and Muslim).
The system of Al-Zakah has been introduced as one of the pillars of Islam which makes it obligatory on the part of the rich to part with a portion of his wealth for the betterment of the needy, destitute and weak members of society.
In view of the above, the main agenda with all societies is the achievement of social and economic development and alleviation of poverty through application of just principles.
Insurance, being an essential service which a welfare state must make available to its people, especially to the poor people, should be pursued vigorously to mitigate many of the social and economic ills of the people. The latest innovative product micro insurance is one of the latest weapons to combat poverty. Let us see how.
Social welfare through micro insurance: The economically weak sections of society need most the social security which is a major social responsibility in any country. In order to achieve this purpose, it will be fitness of the situation that the suitably designed insurance products should be made available to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons of the country and providing them with adequate financial protection against diseases, death and loss of property by various hazards.
Micro insurance, the by-product of insurance, is a valuable service which should be made available to the have-nots.
Following social services can be fulfilled through micro insurance
l'Health for all' is the slogan in every country desiring to achieve healthy society. Health micro insurance can extend benefit of reducing child mortality, improving maternal health and combating HIV/AlDS, malaria and other diseases. Besides, specially designed health micro insurance schemes can provide immunisation, train birth attendants and also help women to afford transportation and hospitalisation for difficult child birth.
lMicro-insurance schemes can also provide valuable information and resources for risk prevention. By providing education about risks and promoting good, health habits, these schemes can reduce incidents of disease and extend life expectancy
lMicro insurance can also assist in promoting gender equality and empowering women.
lLong term savings through micro insurance enable the poor to accumulate assets that can be used to pay for education, marriage, etc for daughters as well as for sons.
To be continued. The writer is Managing Director, Global Insurance Limited