This paper examines the effect of microinsurance usage on household asset welfare, measured as asset accumulation index using a sample of 2006 households with access to formal non-banking and informal financial services from the 2015 FinScope Survey. Using the treatment effect and instrumental variable estimation techniques to account for endogeneity and selection biases, the empirical results support the hypothesis that microinsurance provides financial protection through asset accumulation to improve welfare. The findings are robust for different types of microinsurance products and weighted and unweighted asset accumulation indices. The policy implications of the findings are discussed.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Refer to Booysen et al. (2008) for a detailed discussion on the use of the MCA for the weights.
Most funeral insurance providers have a waiting period (between 3–6 months), except in the case of accidental death, and claims are usually verified by obtaining extensive documentation.
The results of the correlation analysis (omitted to save space but available from the authors upon request) indicate that the estimates do not suffer from multicollinearity bias using the 0.70 threshold of Kennedy (2008).
Without education, the usage of financial services becomes transactional (for consumption) rather than for financial protection and wealth creation (Lusardi and Mitchell 2014).
Abreu, A., and D. Johnston. 2013. Asset indices as a proxy for poverty measurement in African countries: A reassessment. Paper presented at African Economic Development: Measuring Success and Failure. Vancouver, British Columbia, Canada.
Akotey, J.O. 2015. The impact of microinsurance on household welfare in Ghana. Stellenbosch University Doctoral Thesis. Retrieved from: https://scholar.google.co.za/citations?user=dAaul_YAAAAJ&hl=en.
Akotey, J.O., and C.K. Adjasi. 2014. The impact of microinsurance on household asset accumulation in Ghana: An asset index approach. The Geneva Papers on Risk Insurance—Issues Practice 39: 304–321.
Akotey, J.O., and C.K. Adjasi. 2016. Does microcredit increase household welfare in the absence of microinsurance? World Development 77: 380–394.
Akotey, J.O., and C.K.D. Adjasi. 2018. Microinsurance and consumption smoothing among low-income households in Ghana. The Journal of Developing Areas 52 (4): 151–165.
Alderman, H., and T. Haque. 2007. Insurance against covariate shocks: The role of index-based insurance in social protection in low-income countries in Africa. World Bank Working Paper No. 95.
Appleton, S. 1996. Women-headed households and household welfare: An empirical deconstruction for Uganda. World Development 24 (12): 1811–1827.
Basmann, R.L. 1960. On finite sample distributions of generalized classical linear identifiability test statistics. Journal of the American Statistical Association 55: 650–659.
Bester, H., D. Chamberlain, R. Short, and R. Walker. 2005. A regulatory review of formal and informal funeral insurance markets in South Africa. Johannesburg, SA: FinMark Trust.
Bester, H., D. Chamberlain, and C. Hougaard. 2009. Making insurance markets work for the poor: Microinsurance policy, regulation and supervision; evidence from five country case studies. https://www.findevgateway.org/sites/default/files/publications/files/mfg-en-paper-making-insurance-markets-work-for-the-poor-microinsurance-policy-regulation-and-supervision-evidence-from-five-country-case-studies-jan-2009.pdf.
Biyase, M., and T.T. Zwane. 2018. An empirical analysis of the determinants of poverty and household welfare in South Africa. The Journal of Developing Areas 52 (1): 116–130.
Biyase, M., T. Zwane, and S. Rooderick. 2019. Assets and poverty alleviation in South Africa: Evidence from the National Income Dynamics Study (NIDS). Journal of Economic Cooperation and Development 40 (1): 55–78.
Booysen, F., R. Burger, M. Maltitz, and G. Rand. 2008. Using asset index to assess trends in poverty in seven Sub-Saharan African countries. World Development 36 (6): 1113–1130.
Case, A., A. Garrib, A. Menendez, and A. Olgiati. 2013. Paying the piper: The high cost of funerals in South Africa. Economic Development and Cultural Change 62 (1): 1–20.
Cole, S. 2015. Overcoming barriers to microinsurance adoption: Evidence from the field. The Geneva Papers on Risk Insurance—Issues Practice 40: 720–740.
Datt, G., and D. Jolliffe. 2005. Poverty in Egypt: Modelling and simulation. Economic Development and Cultural Change 53 (2): 327–346.
De Bock, O., and D.U. Ontiveros. 2013. Literature review on the impact of microinsurance. ILO Microinsurance Innovation Facility Research Paper No. 35. Geneva: International Labour Office.
Dercon, S., M. Kirchberger, J.W. Gunning, and J.P. Platteau. 2008. Literature review on microinsurance. Microinsurance Paper No. 1. Geneva: International Labour Organization.
Dercon, S., J.W. Gunning, A. Zeitlin, and S. Lombardi. 2012. The impact of a health insurance programme: Evidence from a randomized controlled trial in Kenya. MicroInsurance Innovation Facility Research Paper No. 24.
Doling, J., and R. Ronald. 2010. Home-ownership and asset-based welfare. Journal of Housing and the Built Environment 25 (2): 165–173.
Durbin, J. 1954. Errors in variables. Review of the International Statistical Institute 22: 23–32.
Emorine, M., Y.L. La Hai Anh, and X. Oudin. 2014. Using an asset index to analyse governance in Vietnam. NOPOR Working Paper No. 27. https://basepub.dauphine.fr/bitstream/handle/123456789/17847/NOPOOR%20WP%252%0938_N%C2%B027_Using%20an%20Asset%20Index%20to%20analyse%20Governanc%09e%20in%20Vietnam.pdf?sequence=2&isAllowed=y, last accessed on 7 March 2020.
FinMark Trust. 2016. FinScope South Africa 2015 household survey.
Gale, W.G., G.B. Mills, G.V. Engelhardt, and M.D. Eriksen. 2010. What are the social benefits of homeownership? Experimental evidence for low-income households. Journal of Urban Economics 67 (3). https://ssrn.com/abstract=1752381.
Geda, A., N. de Jong, M.S. Kimenyi, and G. Mwabu. 2005. Determinants of poverty in Kenya: A household level analysis. University of Connecticut Economics Working Paper No. 2005-44.
Gine, X., and D. Yang. 2009. Insurance, credit and technology adoption: Field experimental evidence from Malawi. Journal of Developmental Economics 89: 1–11.
Gounder, N. 2013. Correlates of poverty in Fiji: An analysis of individual, household and community factors related to poverty. International Journal of Social Economics 40 (10): 923–938.
Hausman, J.A. 1978. Specification tests in econometrics. Econometrica 46: 1251–1271.
Hamid, S.A., J. Roberts, and P. Mosley. 2011. Can micro health insurance reduce poverty? Evidence from Bangladesh. The Journal of Risk and Insurance 78 (1): 57–82.
Houweling, T.A., A.E. Kunst, and J.P. Mackenbach. 2003. Measuring health inequality among children in developing countries: Does the choice of the indicator of economic status matter? International Journal for Equity in Health 2 (1): 8.
Janzen, S.A., and M.R. Carter. 2013. The impact of microinsurance on consumption smoothing and asset protection: Evidence from a drought in Kenya. Agricultural and Applied Economics Association 2013 Annual Meeting (4-6 August 2013). Washington, DC (No. 151141).
Karlan, D., R. Osei, I. Osei-Akoto, and C. Udry. 2014. Agricultural decisions after relaxing credit and risk constraints. The Quarterly Journal of Economics 129 (2): 597–652.
Kennedy, P. 2008. A guide to Econometric, 6th ed. Malden: Blackwell Publishing.
Lekobane, R.K., and B.T. Seleka. 2017. Determinants of household welfare and poverty in Botswana, 2002/2003 and 2009/2010. Journal of Poverty 21 (1): 42–60.
Litchfield, J., and T. McGregor. 2008. Poverty in Kagera, Tanzania: Characteristics, causes and constraints. PRUS Working Paper No. 42.
Lusardi, A., and O.S. Mitchell. 2014. The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature 52 (1): 5–44.
Mollers, J., and G. Bechenreider. 2012. Effects of rural non-farm employment on household welfare and income distribution of small farms in Croatia. Journal of International Agriculture 50 (3): 217–235.
Morsink, K., P. Geurts, and A.K. Dijk. 2011. Impact of microinsurance on vulnerability of low income households in the Philippines: The case of typhoon re-housing insurance. Proceedings of the Second European Research Conference on Microfinance (16–18 June 2011). Groningen, Netherlands.
Mosley, P. 2009. Assessing the success of micro insurance programmes in meeting the insurance needs of the poor. United Nations Department of Economic and Social Affairs Working Paper No. 84, ST/ESA/2009/DWP/84. Retrieved from: http://www.un.org/esa/desa/papers.
Noritomo, Y., and K. Takahashi. 2020. Can insurance payouts prevent a poverty trap? Evidence from randomised experiments in northern Kenya. The Journal of Development Studies. https://doi.org/10.1080/00220388.2020.1736281.
Randazzo, T., and M. Piracha. 2019. Remittances and household expenditure behaviour: Evidence from Senegal. Economic Modelling 79: 141–153.
Sargan, J.D. 1958. The estimation of economic relationships using instrumental variables. Econometrica 26: 393–415.
Sekhampu, T.S. 2013. Determinants of poverty in South African township. Journal of Social Sciences 34 (2): 145–153.
Smith, A., D. Chamberlain, C. Hougaard, H. Smit, and J. Carlman. 2010. Reaching the client: Update on microinsurance innovation in South Africa. Retrieved from: https://cenfri.org/wp-content/uploads/2011/12/Reaching-the-client-update-on-microinusrance-innovation-in-South-Africa_FinMark-Trust-Cenfri_July-2010.pdf.
Steinert, J.I., L. Cluver, G.J. Melendez-Torres, and R.H. Romero. 2017. Relationships between poverty and AIDS illness in South Africa: An investigation of urban and rural households in KwaZulu-Natal. Global Public Health 12 (9): 1183–1199.
Van der Waal, C. Why South Africa’s funeral insurance industry is growing rapidly. How we made it in Africa. 13 October 2016. https://www.howwemadeitinafrica.com/south-africas-funeral-insurance-industry-growing-rapidly/56290/, last accessed on 11 April 2020.
Wagstaff, A., and M. Pradhan. 2005. Health insurance impacts on health and nonmedical consumption in a developing country. World Bank Policy Research Working Paper No. 3563. https://ssrn.com/abstract=708444.
Wittenberg, M., and M. Leibbrandt. 2017. Measuring inequality by asset indices: A general approach with application to South Africa. Review of Income and Wealth 63: 706–730.
World Bank. 2016. Financial access and household welfare: Evidence from Mauritania. Policy Research Working Paper WPS7533.
Wu, D.-M. 1974. Alternative tests of independence between stochastic regressors and disturbances: Finite sample results. Econometrica 42: 529–546.
The authors are very grateful for the constructive comments of two anonymous reviewers, which substantially improved the initial draft of the paper. All caveats apply.
Conflict of interest
On behalf of all authors, the corresponding author states that there is no conflict of interest.
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
About this article
Cite this article
Alhassan, A.L., Magazi, N. Microinsurance and household asset welfare in South Africa. Geneva Pap Risk Insur Issues Pract 46, 358–382 (2021). https://doi.org/10.1057/s41288-020-00199-y
- Asset welfare
- Asset index
- South Africa