Private insurance and social protection: lessons from experiments in India, Ethiopia, Bangladesh and Kenya

RESEARCH QUESTION

Households in most developing countries continue to be exposed to high levels of risks, such as related to drought or health, not only leading to poverty but also affecting productivity and growth. Across the world, social protection is being expanded, using government funding or aid. While admirable, this is not necessarily leading to sustainable systems of social protection, in view of the limited local fiscal resources, and concerns about the managerial capacity and state governance. Arguments for extensive government involvement focus on both equity concerns as well as the problem of market failure in insurance markets. While the former may offer some justification, little if any is tried in most developing countries to develop markets for insurable risks, without direct recourse to government. Is it possible to develop and deliver market-based products to relatively poor populations? Are different approaches needed to reach women and men?  What evidence do we have of success and failure?

PROJECT

This work will build on ongoing projects related to health insurance and to drought insurance and their impact on household and individual outcomes (including for men, women and children in the family). In Kenya and India, impact evaluation studies are ongoing on similar attempts to bring private health insurance as a complementary product to state-run but limited hospitalisation insurance. In India, ICICI-Lombard is piloting private out-patient health insurance to be sold as a complementary product to the in-patient, heavily subsidised RSBY insurance product. In Kenya, CIC is offering accident and income protection insurance complementary to (state-run) NHIF hospitalisation insurance product, as one package to farmers and informal sector workers. ILO has provided funding for a basic evaluation study in both countries. The India project has no funding for researching the evaluation data properly at the moment. Here we propose comparative work between the two schemes, to document lessons from trying to crowd in private insurance and whether this model offers scope for scaling up social protection schemes. In Ethiopia and Bangladesh, work is ongoing (with funding from I4 and IGC) on the impact evaluation of two specific weather index insurance products in rural areas. Index insurance is attractive to private insurance companies as it removes problems of adverse selection and moral hazard; it is however still not clear whether it offers enough protection, as payouts are not based on actual losses but on some index correlated with losses. As this makes the products less attractive and lowers uptake, we aim to study further institutional designs in which index based payouts could be combined with incentive compatible ways of assessing losses, for example through supporting mutual insurance groups or using supplementary information.