Bundling Health Insurance and Micro ! nance in India : There Cannot be Adverse Selection if There Is No Demand

Most of the world’s poor face large risks, which affect their investment decisions and contribute to the perpetuation of poverty (Karlan et al. forthcoming). In this context, insurance products targeted at the poor are seen as having substantial promise, as opportunities both to make pro!t and to improve ef!ciency and social welfare. The marketing of insurance products to the poor has faced two obstacles, however. First, demand for insurance products is generally low (Cole et al. 2013). Second, insurers have been worried about adverse selection and moral hazard, with the latter concern leading insurers to offer only basic products (e.g., indexed weather insurance or catastrophic health insurance). Bundling insurance policies with other products, such as micro!nance loans, has been seen as a promising solution to both the demand and the adverse selection problems (see, e.g., ILO 2013), under the theory that even those who derive little bene!t from insurance would still want the bundled services. Micro!nance institutions might either serve as an agent to a larger insurance company or offer the insurance policy Bundling Health Insurance and Micro!nance in India: There Cannot be Adverse Selection if There Is No Demand †