One of the biggest untapped areas for extending group health insurance is the informal sector. These are workers who are not on formal company payrolls, freelancers, day laborers, or employees of very small businesses without formal contracts.
Reaching this group isn’t just a matter of social responsibility. It can also bring long-term benefits to businesses in productivity, public health, and even employer branding. But before we can scale group health insurance into this space, there are obstacles to overcome and opportunities to grab.
Why the Informal Sector Matters
The informal sector in Pakistan is large. Many workers outside of big industries, agriculture, small retail, transport, domestic work, etc., do not enjoy health benefits. That means large gaps in healthcare access, high out-of-pocket spending, and often poor health outcomes.
For businesses operating in or with parts of the informal sector, whether as suppliers, contractors, or in local ecosystems, the well-being of informal workers impacts supply continuity, labor cost, worker retention, and community reputation.
If more businesses could bring group health insurance to informal workers, either directly or via intermediaries, there are clear social impacts, but also business case gains: fewer absentee days, better wellness, less risk of financial burdens pushing workers into crisis, better loyalty, and stronger employer/partner reputation.
Key Challenges
From conversations with insurers and HR colleagues, the following are the main obstacles:
1. Verification and Documentation
Many informal workers lack formal documentation: ID cards, employment contracts, and proof of income. Insurers usually demand certain documentation for enrolment, risk assessment, and claims. Without reliable data on age, health history, employment, and existing medical conditions, it’s harder to price risk, set premiums, and avoid adverse selection.
2. Cost Sensitivity
Informal sector workers typically have irregular, low, or unpredictable incomes. Paying premiums, even modest ones, can be a heavy burden. Businesses may not want to absorb these costs entirely, and workers may not be willing or able to contribute full amounts in advance.
3. Regulatory & Legal Ambiguity
There isn’t always a clear legal or regulatory framework compelling or enabling businesses to extend group health insurance to informal workers. Insurance law, labor laws, tax incentives, or subsidies may not cover or favor informal employment. This makes designing compliant, sustainable plans harder.
4. Trust & Awareness
Many in the informal sector are unfamiliar with insurance concepts: premiums, claims, exclusions, waiting periods, and pre-existing conditions. Mixed messages or past negative experiences (or hearsay) erode trust. Workers may avoid engaging with insurance due to fear of hidden costs or not getting benefits when needed.
5. Administrative Complexity
Enrolling, tracking, collecting premiums, handling claims, educating beneficiaries, resolving disputes; these tasks are often harder when workers are mobile, dispersed, or part-time.
Businesses may not have the HR infrastructure to manage informal worker insurance well, and insurers may see the operational costs as too high per person for these groups.
6. Risk of Adverse Selection
If only those who expect bad health join, costs shoot up. Without broad enrolment, premiums may become unsustainable. Informal workers may delay enrolment until illness arises, further worsening risk pooling.
Opportunities & Possible Models
Despite these challenges, there are several promising paths, some already in use globally, some ripe for innovation in Pakistan.
1. Micro-group Plans / Tiered Coverages
Design lightweight, affordable plans with basic coverage (e.g., outpatient, diagnostics, emergency hospitalization) at a low premium, optionally upgradeable. This allows informal workers to choose what fits their budget, maintaining inclusivity.
2. Employer & Community Subsidies
Businesses, NGOs, or local government can subsidize part of the premium for informal workers. For example, a business that uses day laborers can offer group health insurance as a benefit, bearing part of the cost. Alternatively, cooperatives or community-based pooling may help spread cost and risk.
3. Partnerships with Insurtech / Digital Platforms
Use technology to reduce administrative costs: digital enrollment, mobile apps for premium payment, claims via mobile phone, and telemedicine consults. These reduce friction and build transparency.
Platforms like SmartBenefits.pk already offer group health for SMEs; similar models could be adapted for informal sector enrolment with scaled-down admin. You can explore how to tailor coverage via flexible options, read Group Health Plans: How to Tailor Coverage to Meet Employee Needs, to get useful insights into matching plan design to populations.
4. Awareness & Financial Literacy Programs
Many informal workers need simple, clear education about how group health insurance works, what it will cover, and what their responsibilities are. Workshops, local community engagement, and even mobile messaging can help establish trust.
Testimonials and details that explain panel hospitals, waiting periods, and what is and is not covered help to reduce uncertainty and vagueness around benefits.
5. Regulatory & Policy Support
Governments or regulatory bodies can enable this via incentives: tax breaks for businesses or community initiatives that ensure informal workers, regulatory frameworks that allow flexible group sizes, and minimum standards for consumer protection.
Policies that recognize alternative documentation or relax eligibility for group enrolment may help expand reach.
6. Pilot Projects
Launch smaller pilot efforts in certain communities or with specific informal worker groups, say, drivers, street vendors, and domestic workers, then gather data, evaluate claims, costs, and satisfaction. These pilots can help refine pricing, process, and scale effectively.
Areas Businesses Should Think About
Business owners considering bringing group health insurance to their informal workforce can consider the following practical steps and considerations:
- Assess demographics: how many informal workers, their age, health status, how often they avail care, and what is their current medical expenditure. Even rough surveys can help.
- Start small: perhaps offer a pilot with limited coverage or in one location, see the usage and claims, and get feedback. Use that learn-and-iterate approach.
- Negotiate: clearly with insurers regarding minimum documentation, waiting periods, pre-existing condition clauses, and ensure claims experience is manageable.
- Use technology: simplify premium collection (possibly monthly, digital), claims submission, and benefit awareness. Ensure that panel hospitals or clinics are accessible to informal workers geographically.
- Communicate: keep coverage, limitations, and process transparent. Make sure workers understand what is covered, what is not, how to make claims, and how to avoid unnecessary costs (for example, using in-network clinics).
- Monitor: costs, claims, satisfaction, abuse, and adverse selection. As you get more data, adjust premiums, coverage, or enrollment strategy.
We have seen that small businesses offering group health plans to formal employees see improvements in retention and employee satisfaction. A useful article is Cost Containment Strategies: Managing Health Insurance Expenses for Businesses, which offers methods (such as wellness programs, generic medication, and network management) to keep premiums and claims manageable. Those strategies may be essential once you expand coverage to more workers.
Conclusion
Extending group health insurance into Pakistan’s informal sector is not an easy task. It requires overcoming barriers of cost, trust, documentation, regulation, and administration. But the potential rewards, healthier communities, improved business stability, stronger employer reputation, reduced absenteeism, and even regulatory goodwill, make it worthwhile.
If your business is exploring how to include informal workers in your employee benefits, considering the models above may help you build a more inclusive and resilient workforce.
Sadia Zaheer holds a Masters in Business Administration from IBA, Karachi. After working in several financial institutions in Client Management, Corporate Lending, Islamic Banking and Product Management she jumped careers to pursue a career in writing.
She is a Finance, Business and HR Development writer with four years of experience. She reads a lot and takes care of her multiple cats to remain calm.
