Designing Insurance for the Poor
This brief focuses on the design of insurance schemes for poor communities. It discusses the nature of risk in developing countries, and the characteristics and scope of insurance to meet the needs of the poor. Insurance interventions for the poor need to take into account the surrounding environment, other interventions affecting risk and the way potential consumers respond to risk. Specific interventions should be targeted at existing groups, especially those with developed forms of insurance provision and mutual support. Working with groups has considerable advantages, such as:
- Reduced risk of adverse selection;
- Reduction in monitoring costs;
- Easier targeting;
- Existing mutual support systems.
Targeting insurance to the poor requires careful design of products as well as educating target groups. In conclusion, successfully devising insurance schemes to meet the needs of the poor requires a holistic approach that considers the risk behavior of users, the surrounding environment, and potential side effects, such as on credit markets. Costs and benefits need to be taken into account along with potential trade-offs.
