Health Insurer to the Poor?

Awhile back, Christine Bowers over at the PSD blog commented on a trend in Mexico towards micro-insurance, noting that 2007 may be the Year of Micro-Insurance:

I think this could be the year that we wake up to the possibilities of microinsurance. Not only life insurance, but also health, crop, livestock and other insurance policies are a classic win-win for the poor and the companies who serve them. Microinsurance is every bit as powerful as microcredit.

As my colleague David Roodman and his co-author, Uzma Qureshi, note in Microfinance as Business, there has been exciting experimentation with credit-linked life insurance in Uganda and Thailand. In my own work from the microfinance funding side, I've seen a similar trend in Kenyan microfinance institutions.Credit-linked life insurance makes sense. From the microfinance institution perspective, life insurance reduces the costs of borrower default in a population where it may be difficult to tell who is sick. For borrowers and their families, it can help cover potential funeral costs and reduce household income vulnerability to illness.I'll be curious to see if African microfinance institutions, particularly in the face of high HIV/AIDS prevalence, begin to offer credit-linked health insurance products to their clients. These products have the potential to improve borrower health, reduce household income variability, and make good business sense to the microfinance institution.There are certainly difficult questions here surrounding the unique moral hazard and adverse selection issues in health insurance; it's far from clear the concept would work successfully. But, if anything, the story of Muhammad Yunus and of microfinance has been one of experimentation. When collateral was thought to be critical to lending and the poor were perceived to be bad credit risks, Yunus experimented with group loans in Bangladesh and John Hatch experimented with village banks in the Americas. So will someone find a way to make credit-linked health insurance work?Update: The Wall Street Journal also weighs in on the growing role of microinsurance (via the PSD blog)