Health Insurance: making the Informal Formal


In his book Africa Rising, Vijah Mahajan portrayed the African economy as the 10th largest in the world, but often underestimated due to the large size of the informal economy. More like a parallel economy (almost 50% of GDP), the International labour Organisation in Geneva, estimated that the informal sector also accounts for over 70% of employment in Africa.

Over the years, policy makers and practitioners have had great challenges in making health insurance services available to this group – either as a means of financial protection against the risk of unexpected and expensive illness; or as a form of savings set aside to cover relatively predictable contingencies such as annual medical check-up or even treatment for acute malaria for example.

Past attempts at providing health insurance coverage for those working in the informal sector and their families through community-based or micro-health insurance schemes were seen to have not achieved their desired impact. This was largely attributed to the realisation that irrespective of the scale of operation or population segment that is covered, financing healthcare through insurance requires the same level of managerial and technical sophistication necessary to deliver real value to clients while remaining viable.

Therefore, in the era of Universal Health Coverage, there needs to be creative redesign of workable business models away from traditional approaches that are not scalable. Going by the Africa Rising script, one could propose that the challenge of expanding health insurance to the informal sector is similar to the problems of distribution of products to reach those at the bottom of the income pyramid being faced by manufacturers in Africa. And their experience in overcoming these difficulties appear to be the paradigm shift required for making health insurance products available to this group. It has been noted that by understanding local consumers and the small unorganised retailers, using computer routing to find the best path through a complex and fragmented retail network; many multinational companies such as Unilever and Coca Cola were able to bring the informal sector within their sphere of influence to join the mainstream of consumers of their products.

Learning from this model, the task in Africa for health insurance organisations (for-profit or non-profit) especially Health Maintenance Organisations and Health Insurance Companies is to organise health insurance for the informal economy in a manner that strategically aims at bringing this group into a ‘single pool’ of contributors and beneficiaries, along with their formal sector counterparts. This would require the use of creative means as outlined above to ensure that while offering the full range of services to this population, their premium contributions are fair enough for them to remain consumers of health insurance products and services. No doubt, there would be linkages with other aspects of the emerging market for health insurance in Africa including premium subsidies by government or other bodies, as well as incentives for insurers and providers to specifically target the informal sector population ◊◊◊