UNDERSTANDING INSURANCE

What We’re Learning: To help people manage risks, you have to understand their diverse and specific needs.

Risk is a constant companion for many poor people in the developing world. A sudden sickness or death can plunge a family into debt at the same time their income decreases. A drought or a flood can wipe out a year’s labor and derail a life’s work. These unexpected events push people further into poverty and prevent them from moving out.

In the developed world, insurance products help people manage these risks. But they’re rarely designed to meet the diverse and specific needs of the poor. Therefore, we are making grants to better understand how insurance products can give people in the developing world greater financial security and how they can be made more accessible.

We are learning a lot from the Aga Khan Foundation about what kind of insurance products poor people most value. The Aga Khan Foundation is experimenting with several different kinds of insurance products in Pakistan and Tanzania: hospitalization insurance, life insurance, and asset insurance (livestock insurance, for example).

In Pakistan, the Aga Khan Foundation has worked through an infrastructure of hospitals and microfinance institutions that already exists, allowing it to reach even those who live in remote rural areas. These customers have expressed a preference for hospitalization insurance over life insurance. They also want help with day-to-day health expenses such as medication. As a result, the Aga Khan Foundation is now thinking about developing health savings accounts for its clients.

In Tanzania, life expectancy is significantly lower than in Pakistan. For that reason, the Aga Khan Foundation will test its hypothesis that life insurance will be a more popular product there as the project gets off the ground. It will continue to track its clients’ preferences as its work progresses.

In both countries, livestock insurance is important because many families’ assets are tied up in their herds. But thus far, livestock insurance has proved prohibitively expensive for many of the people who need it, and the Aga Khan Foundation is starting to explore ways to drive the price down.

As a result of these early lessons, the Aga Khan Foundation is now examining ways to bundle services together so that families can pay a single premium and still be protected against many of the shocks they might face. The hope is that bundling services could decrease costs while increasing convenience.

Over the next several years, by working closely with partners and listening carefully to clients in developing countries, we hope to find insurance products that help poor families manage risks and build financial security.