Academic journal article The Journal of Developing Areas

Exploring the Effect of Microinsurance on Asset Inequality among Households in Ghana

Academic journal article The Journal of Developing Areas

Exploring the Effect of Microinsurance on Asset Inequality among Households in Ghana

Article excerpt

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Unexpected events such as accidents and death can force certain households to dispose off essential assets to cope. By insuring households against future welfare losses, microinsurance helps in the reduction of asset loss, vulnerability and poverty. The indemnity enjoyed by the insured prevents the liquidation of essential assets at below market prices. This facilitates household financial stability and the steady build-up of essential assets by families. The long-term benefits of the avoidance of asset loss and financial stability are sustained poverty reduction and reduction in asset inequality among low-income households. Asset loss, poverty and inequality go hand in hand but microinsurance can break a part of the cycle that ties them together.

However the issue of whether microinsurance can reduce asset inequality is relatively new to the literature and evidence on it from the perspective of Africa is non- existent. Hence this study delves into the trends of asset inequality among households in Ghana and determines whether microinsurance schemes provided by the private sector and the government help to reduce asset inequality. In particular we ask: can microinsurance be used to bridge the asset inequality gap among households in Ghana?

The level of the global household wealth was estimated at US$222.7 trillion in 2012, if shared equally, this translates into US$48,500 per adult of the 4.6 billion global adult population (Credit Suisse, 2012). The distribution of this wealth, however, reveals incredible levels of inequalities within and between countries. For instance, Switzerland has household wealth per adult of US$470,000; Australia has US$350,000; Norway has US$330,000 while India, Ghana and Burundi have US$4,250; US$2,009 and US$283 respectively (Credit Suisse, 2012). The continental dynamics indicate that Africa is second to Latin America as the most inequitable region of the globe. Indeed, six of the ten countries with the highest levels of inequalities are in Africa (AfDB, 2012a).

In Ghana the Food and Agricultural Organization (FAO, 2012) reports (1) severe economic inequalities and poverty in the three northern regions of the country, and (2) persistent employment inequalities among male and female and across the rural-urban divide. These economic and employment inequalities impede the efforts of individuals and households in accumulating private assets. Van de Poel et al (2008) provide evidence from a socio-economic inequality study involving 47 developing countries that a "queuing effect" exists in Ghana's socio-economic inequality since the upper class are better off while the bottom class is expected to wait for a "trickle -down" effect. Similarly, the most recent living standard survey (GLSS 5) conducted by the Ghana Statistical Service indicates wide inequalities in per capita consumption expenditure. The highest quintile has an average per capita expenditure of about GHS1,261 (US$1,261)2. This is nine and half times higher than the per capita expenditure of households in the lowest quintile (GHS132.00 or US$132.00) and about two times more than the national average of GHS644.00 (US$644.00).

The findings of this study will not only guide the government on how to reduce these inequalities but it will also fulfil the urgent need in the literature about the effect of microinsurance on asset inequality. It will also influence the National Insurance Commission's (NIC) policy on the microinsurance industry. Another unique feature of this study is its focus on asset inequality instead of income inequality as a welfare measure. There is a debate (for example see; Harttgen et al., 2013) about whether assets are a better measure of welfare than income and consumption expenditures. Several studies (see for example; Moser and Felton, 2007; McKenzie, 2004) claim that household assets are practically more accurate and consistent in measuring poverty because assets do not suffer from the issues of recall bias, mis-measurement, and households' reluctance to divulge sensitive information regarding income and consumption expenditures. …

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