Improving the Social Protection of the Urban Poor and Near-Poor in Jordan: The Potential of Micro-Insurance

206 Pages Posted: 20 Feb 2013

See all articles by Markus Loewe

Markus Loewe

German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE)

Jens Ochtrop

Kreditanstalt für Wiederaufbau (KFW) - KfW Development Bank

Christine Peter

Independent

Alexandra Roth

Independent

Maja Tampe

Independent

Arvid Türkner

Independent

Date Written: February 15, 2002

Abstract

The present study proposes that non-governmental and commercial institutions in Jordan should seek partnership in micro-insurance projects and recommends that donors support such initiatives. It argues that micro-insurance is a new promising approach to reducing the vulnerability of urban population groups that are difficult for conventional social protection strategies to cover. Nevertheless, social assistance and social insurance still have their role to play.

The vulnerability of households to risks (such as the death, work disability or unemployment of their provider, illness or old age) is a major factor contributing to widespread poverty in Jordan. Almost half the population lacks access to social protection instruments, and hence the occurrence of risks leads to serious declines in well-being – often below the poverty line.

The present gap in social protection provision is of special concern for low-income groups. Most of them are informal sector employees and are thus not covered by social insurance. Private insurance is too expensive for them and their ability to save is limited. Traditional mutual support among relatives, friends and neighbours is limited in scope and not sufficiently reliable to constitute effective protection. Social assistance, finally, reaches less than 4 % of the population.

Micro-insurance is a feasible approach to closing part of this gap. The study shows that a high number of urban households would be willing to provide for the future and are able to pay small insurance primes but lack adequate provisioning offers. The study presents the design of a suitable product and outlines the potential organisational shape of cooperation between non-governmental organisations and commercial insurance companies. These partners would, with the backing of the state, be able to offer a term life and work disability micro-insurance product at an affordable price. The insurance company would design the product, invest reserves and re-insure the scheme, while the non-governmental organisation (a welfare organisation or a microfinance institution) would assume responsibility for product marketing, underwriting and claim management. The idea behind such partnership is to combine the strengths of the actors involved, in this way reducing risk potentials and lowering transaction and information costs.

However, the study also stresses that microinsurance cannot provide for comprehensive social protection: for the time being, it would be possible to offer only life and work-disability insurance. Moreover, the micro-insurance approach is not an appropriate approach to covering the entire urban population. While it can reduce the vulnerability of the non-poor, it does not present a solution for the desperately poor, who have no extra-income for insurance.

Accordingly, what is required is a threefold strategy. The study recommends the following measures: (i) launch of micro-insurance for the vulnerable non-poor, (ii) widening of the outreach of social assistance to all of the desperately poor and (iii) reform of the operating social insurance schemes with an eye to restoring their financial sustainability and making them fit for a future step-by-step extension of their coverage to additional groups of the employed.

Keywords: Jordan, social protection, informal sector, poverty, social security, social assistance, micro-insurance

JEL Classification: G22, D81, I 30, H40, H55

Suggested Citation

Loewe, Markus and Ochtrop, Jens and Peter, Christine and Roth, Alexandra and Tampe, Maja and Türkner, Arvid, Improving the Social Protection of the Urban Poor and Near-Poor in Jordan: The Potential of Micro-Insurance (February 15, 2002). Available at SSRN: https://ssrn.com/abstract=2218844 or http://dx.doi.org/10.2139/ssrn.2218844

Markus Loewe (Contact Author)

German Development Institute/Deutsches Institut für Entwicklungspolitik (DIE) ( email )

Tulpenfeld 6
Bonn, 53113
Germany
+49 0 228 94927 0 (Phone)
+49 0 228 94927 130 (Fax)

HOME PAGE: http://www.die-gdi.de/CMS-Homepage/openwebcms3.nsf/(ynDK_contentByKey)/ENTR-7ARHJ3?OpenDocument&nav=

Jens Ochtrop

Kreditanstalt für Wiederaufbau (KFW) - KfW Development Bank ( email )

Palmengartenstr. 5-9
Frankfurt, 60325
Germany

Christine Peter

Independent ( email )

No Address Available

Alexandra Roth

Independent ( email )

No Address Available

Maja Tampe

Independent ( email )

No Address Available

Arvid Türkner

Independent ( email )

No Address Available

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