Insurance for the Poor: The Case of Informal Insurance Groups in Benin

This paper studies the functioning of indigenous insurance groups in Benin, using evidence from its urban areas. The paper provides a description of these groups and then investigates, with the help of an original dataset, which individual characteristics are significant in explaining both the probability to join such groups and the choice of insurance coverage. The paper states that these informal institutions:

• Have:
  • A defined membership;
  • Particular procedures to accept new members;
  • Rules and regulations;
  • Sanctions in case of non-payment or misbehavior.
• Offer premium-based insurance for funeral expenses, as well as other forms of insurance.

The paper:

• Uses household level data on members and non-members to highlight differences in terms of individual characteristics;
• Describes how individuals within households take the decision to join such groups and how husband and wife interact with each other.

It concludes that:

• Insurance group participation is not a gender issue;
• The decision to join a group is made individually in such a way that each spouse retains the control over his/her spending;
• Group participation and choice of coverage is primarily driven by income;
• Group selection is made on the basis of social connectedness;
• These insurance groups can reach underprivileged households at a relatively low cost;
• Financial support would help them contribute to development and finance activities in a sustainable way;
• Pooling numerous individuals of the same neighborhood could greatly improve the extent of insurance.