The impact of microinsurance on household welfare in Ghana

Type Thesis or Dissertation - Doctor of Philosophy in Development Finance
Title The impact of microinsurance on household welfare in Ghana
Publication (Day/Month/Year) 2015
Microinsurance services have been operating in Ghana for the last decade, but the question
whether they have enhanced the welfare of low-income households, mostly in the informal sector,
is largely unresearched. In particular the study asks: does microinsurance improve the welfare of
households through asset retention, consumption smoothing and inequality reduction? This
question has been examined through the use of the 2010 FINSCOPE survey which contains indepth
information on 3 642 households across the rural and urban settings of the country. In order
to control for selection bias and endogeneity bias, Heckman sample selection, instrumental
variable and treatment effect models were employed for the evaluation. The results of the
assessment have been compiled into four empirical essays.
The first essay investigates the impact of microinsurance on household asset accumulation. The
findings show that microinsurance has a positive welfare impact in terms of household asset
accumulation. This suggests that microinsurance prevents asset pawning and liquidation of
essential household assets at ‘give away’ prices. By absorbing the risk of low-income households,
insurance equips them to cope effectively with risk, empowers them to escape poverty and
sustains the welfare gains achieved.
The second essay examines the impact of microinsurance on consumption smoothing. It delves
into the capacity of microinsurance to enable households to avoid costly risk-coping methods
which are detrimental to health and well-being. The results reveal that insured households are less
likely to reduce the daily intake of meals, which is an indication that microinsurance is a better
option for managing consumption smoothing among low-income households.
The third essay investigates the effect of microinsurance on households’ asset inequality. The
findings indicate that the asset inequality of insured households is less than that of uninsured
households. Insured female-headed households have much lower asset inequality than maleheaded
households, but uninsured female-headed households are worse off than both uninsured
and insured male-headed households. The regional trend reveals that developmental gaps impede
the capacity of microinsurance to bridge the asset inequality gap.
The fourth essay asks: Does microcredit improve the well-being of low-income households in the
absence of microinsurance? The findings show a weak influence of microcredit on household
welfare. However households using microcredit in combination with microinsurance derive
significant gains in terms of welfare improvement. Microcredit may be good, but its real benefits to
the poor is best realised if the poverty trapping risks are covered with microinsurance. To this
extent, combining microcredit with microinsurance will empower the poor to make a sustainable
Stellenbosch University
exit from poverty. The findings of this thesis have pertinent policy implications for the government,
the development community and stakeholders in the insurance industry. Microinsurance is a good
instrument for improving the welfare of households and thus this research recommends its
integration into the poverty reduction strategy of Ghana and a greater insurance inclusion for the
lower end of the market.

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