Microinsurance and the New Middle Class


About the research: 

The Center for Social Policies at the Getulio Vargas Foundation (CPS/FGV) has shown in successive studies the emergence of a new middle class in Brazil: from 2003 to 2008, 27 million people have ascended to classes ABC. After the external crisis hit Brazil in September 2008, our studies chronicled the maintenance of the recently acquired living standards during the critical period. The new Brazilian middle class became a macroeconomic asset to make up for a decrease in exports as a result of the global economic retraction. With data that goes up to July 2009, we continue monitoring the evolution in the population composition in its various economic strata (ie., classes E, D, C and AB) as well as its close determinants such as income inequality and mobility and its respective labor-related components.
A Social Draw – Nine months after the crisis began, there is a clearer vision of its effects on Brazilians in the six largest metropolises. Income inequality - that had undergone a serious deterioration when 30% of previous years’ gains were lost in January alone – has come back to the same pre-crisis’ levels (Gini 0,5627). Even class AB that earns more than 4800 reais per month and had lost more with the crisis (-2,7% in January), today is only 0,5% below the level one year ago (14,97% of the population is in class AB, with almost 55% of the income). Class C has a positive result with a gain of 2,5% in 12 months (the prevalent class in terms of population size: 53,2%). If this draw may be considered a good results in times of crisis, it also hides a sudden halt in the previous improvement in indicators: from July 2003 to July 2008, Class AB grew 35,7%, class C increased 23,1% and income inequality decreased as never before in the Brazilian statistical series.
New Agenda – In the same way as we updated our traditional series, we have introduced some innovations. Our strategy has that we shall strive to introduce a new dimension to the analysis of the middle-class at each research update: access to consumer goods, entrepreneurship and microcredit, quality education, among others; exploring a new perspective with each research. In the present research, following the impacts from the financial bubble burst, we explore the demand for insurance by the low-income population and by the groups that recently emerged to new economic classes. Micro-insurance as an agenda only now emerges in the world, just as microcredit had done in the last two decades. They are natural sequences of the same process; as microcredit enables an improvement in people’s lives, micro-insurance helps decrease people’s vulnerability to adverse shocks such as unemployment, disease, accident, theft, death, among others. During last years’ improved income distribution, we have handed out the poor population to consumer markets. Now we aim to hand the market out to poor producers as we explore the entrepreneurship and productive credit agendas as in previous researches, as the quality education agenda in the next researches, and in the current demand for micro-insurance. Placing low-income people as agents of change in their lives, integrating social and economic aspects and exploring public-private interactions form the new generation of social policies for the next decade.
Micro-insurance – In the present study based on a Household Budget Survey (POF/IBGE) we analyze the determinants of the private demand for insurance at the base of the income distribution pyramid with a view to establishing an incipient micro-insurance industry in the country. Assessing the effect of micro-insurance on well-being requires an analysis of the income process of individuals through PME/IBGE (monthly employment survey) and an assessment of public and private institutions that condition people’s financial behaviour. An interesting aspect of micro-insurance is the creation of well-being gains without fiscal implications. Nonetheless, current Brazilian inequality in terms of insurance expenses is close to the scenario where only one person holds all the insurance in society.
Plan – Initially, we reviewed the economics literature on the financial motivation of individuals in order to provide a conceptual reference that would help us interpret the demand for different types of insurance by the low-income population – to discuss then its practical application in the light of microfinance literature. Next, we measured the main determinants of the total and sector-specific micro-insurance demand (health, life, pension, etc.) where economic class, instead of individual income, plays a vital role in our results. In the next step, we included changes in economic classes and financial innovation to imagine a scenario of private insurance market in Brazil. Finally, we analyze the post-crisis evolution of the income distribution, economic classes and the individual risk of mobility between these classes, as determinants of the demand for insurance and the well-being of the population.