Obstacles facing poverty alleviation through insurance programs

Social insurance programs are playing a key role in fighting poverty in China. In the Ningxia Hui Autonomous Region, 580,000 poor people have benefited from insurance. In Hebei Province, an innovative ‘finance plus insurance’ scheme has been created; in Yunnan Province, Zhaotong City has provided ‘one-stop medical expense reimbursement’, and in Henan Province, Lankao County also launched insurance programs to fight poverty. Insurance programs can pinpoint potential risks in areas such as agriculture, major diseases, innovative agricultural financing and so on. It’s an important tool to prevent and resolve risks in poverty alleviation.

Nevertheless, three obstacles must be overcome in order for insurance programs to have any large-scale effect in poverty alleviation.

First, there must be a long-term mechanism for the government and insurance provider to work together.

In recent years, many local governments have begun cooperating with insurance providers to fight poverty, but much of this cooperation is short term at the moment, while some even bid for new partners every year. As a result, some local governments have chosen bidders that offer cheaper prices instead of focusing on who would provide better insurance, consequently affecting the result of poverty alleviation. Therefore, there needs to be long term planning and a long term cooperation mechanism between the government and the insurance provider.

Fortunately, the China Insurance Regulatory Commission and the State Council have confirmed recently that a long-term mechanism must be established, and poverty alleviation through insurance programs has been included into the overall planning for poverty alleviation in China.

Second, there needs to be innovative insurance products.

Poverty alleviation insurance programs are not new. A number of insurance products tailor made for farmers and villagers such as Micro Insurance, Farmhouse Insurance and Agricultural Insurance came out a few years ago. However, these are all small-scale projects, and we now have to find a way to substantially increase the scale of these programs.

The key to this challenge is delivering targeted measures. We have to pinpoint the cause of poverty in each case and find out the specific needs in order to develop different categories of insurance programs for different groups of people. For instance, health insurance providers can look into how to insure the poor against critical illnesses; industry insurance providers can develop and promote risk sharing compensation mechanisms including insurance, banks and the government.

Third, there has to be risk control in poverty alleviation through insurance programs.

The goal of these insurance programs is not to make a profit but lift people out of poverty. However, the bottom line that ensures the longevity of such programs is to properly manage a deficit and prevent significant loss. It tests the comprehensive operation ability of the insurance provider. A recent joint opinion issued by the China Insurance Regulatory Commission and the State Council has clearly stated that deficits caused by poverty alleviation programs will not be included into performance evaluations. In the meantime, it has encouraged insurance providers to actively take part in infrastructure as well as key industry and livelihood project building in poverty-stricken areas, effectively providing a way for stakeholders to reduce risks while participating in poverty reduction programs.