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Do Micro Health Insurance Units Need Capital or Reinsurance? A Simulated Exercise to Examine Different Alternatives*

Author

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  • David M Dror

    (arte de Frontenex 39b, CH-1207 Geneva, Switzerland.)

  • John Armstrong

    (arte de Frontenex 39b, CH-1207 Geneva, Switzerland.)

Abstract

The purpose of this article is to provide a technical discussion of capital loading that “micro health insurance units” (MIUs) must add to the premium to maintain financial sustainability. MIUs offer benefit packages and require prepayment, that is, they create a rudimentary community-based health insurance for poor people in low-income countries. We broke up the 2001 data set of a health insurer containing upward of 1.3 million insureds into 535 “virtual MIUs”; and running 1,005 iterations, we got a data yield of 537,675 virtual MIUs. Capital loading levels increased steeply with decreasing group size and higher confidence levels. The impact of group size remains strong even with groups of 25,000 plus, and is stronger than the impact of changes in confidence levels. We discuss options to correct size-related premium bias through government subsidies, and conclude that reinsurance is cheaper than capital loading and a preferable solution for governments compared to other alternatives. The Geneva Papers (2006) 31, 739–761. doi:10.1057/palgrave.gpp.2510107

Suggested Citation

  • David M Dror & John Armstrong, 2006. "Do Micro Health Insurance Units Need Capital or Reinsurance? A Simulated Exercise to Examine Different Alternatives*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 31(4), pages 739-761, October.
    • Handle: RePEc:pal:gpprii:v:31:y:2006:i:4:p:739-761
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    Citations

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    Cited by:

    1. Selim Mankai & Aymen Belgacem, 2013. "Interactions Between Risk-Taking, Capital, and Reinsurance for Property-Liability Insurance Firms," Working Papers hal-04141190, HAL.
    2. Sayem Ahmed & Md Zahid Hasan & Nausad Ali & Mohammad Wahid Ahmed & Emranul Haq & Sadia Shabnam & Morseda Chowdhury & Breda Gahan & Christine Bousquet & Jahangir A M Khan & Ziaul Islam, 2021. "Effectiveness of health voucher scheme and micro-health insurance scheme to support the poor and extreme poor in selected urban areas of Bangladesh: An assessment using a mixed-method approach," PLOS ONE, Public Library of Science, vol. 16(11), pages 1-31, November.
    3. Biener, Christian, 2013. "Pricing in Microinsurance Markets," World Development, Elsevier, vol. 41(C), pages 132-144.
    4. Selim Mankaï & Aymen Belgacem, 2016. "Interactions Between Risk Taking, Capital, and Reinsurance for Property–Liability Insurance Firms," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(4), pages 1007-1043, December.
    5. Selim Mankaï & Aymen Belgacem, 2013. "Interactions Between Risk-Taking, Capital, and Reinsurance for Property-Liability Insurance Firms," EconomiX Working Papers 2013-23, University of Paris Nanterre, EconomiX.
    6. Pahnenko Olena M. & Lysenko Varvara S., 2014. "Micro-insurance as the Basis for Development of Voluntary Medical Insurance in Ukraine," Business Inform, RESEARCH CENTRE FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS (KHARKIV, UKRAINE), Kharkiv National University of Economics, issue 1, pages 268-274.

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