This paper discusses the role of private health insurance (PHI) in developing countries. Three major findings emerge from a comprehensive and systematic review of the performance of PHI in five regions of the developing world. First, PHI involving pre-payment and risk sharing currently only plays a marginal role in the developing world. Second, in many countries the importance of PHI to finance health care is on a rise due to growing dissatisfaction with public health care, liberalization of markets and increased international trade in the insurance industry, as well as higher and more diversified consumer demand stemming from rising incomes. Third, the development of PHI presents both opportunities and threats to the health care system of developing countries. If PHI is carefully managed and adapted to local needs and preferences, it can be a valuable tool to complement existing health-financing options. However, the introduction of PHI might also lead to cost escalation, a deterioration of public services, a reduction of the provision of preventive health care and a widening of the rich-poor divide in a country?s medical system. Given these risks, the crucial challenge for policy makers is to develop a regulatory framework that is adapted to a country?s institutional capacities and that, at the same time, sets the rules and standards in which PHI can efficiently operate and develop.