Risk is pervasive in low-income economies, but insurance markets tend to be under-developed and demand for existing products is often low and poorly understood. Usually, customers must buy insurance by making a single lump-sum payment. We study a popular life insurance product sold by Mexico’s leading microfinance institution. We exploit a large-scale natural experiment involving 200,000 poor female microcredit customers and show that demand increased by 59 to 74 percent when customers were allowed to pay in weekly installments instead of in a lump sum, even though doing so was more costly for them. The finding is not explained by price or income, which do not change. We describe the possible roles of liquidity constraints and other explanations, and relate the result to discussions of demand for microinsurance and other products, including merit goods, in similar contexts.
Publications
Viewing all posts with tag: Insurance
Big Questions in Insurance
For the world’s poor, living with unpredictable and inadequate income flows makes it difficult to cope with risk. Catastrophic events such as illness or crop failure can be devastating financially. Households use a variety of strategies to protect themselves from misfortune. Formal insurance may be the last resort after all other possible mechanisms for risk protection become unworkable.
But how exactly will insurance be delivered? What new innovations matter most in insuring the poor? What can be done to increase microinsurance take‐up rates? This briefing note seeks to explore these questions and provide additional resources on these and related topics.
Migration as a Strategy for Household Finance: A Research Agenda on Remittances, Payments, and Development
It is time to fundamentally reframe the research agenda on remittances, payments, and development. We describe many of the research questions that now dominate the literature and why they lead us to uninformative answers. We propose reasons why these questions dominate, the most important of which is that researchers tend to view remittances as states do (as windfall income) rather than as families do (as returns on investment). Migration is, among other things, a strategy for fi- nancial management in poor households: location is an asset, migration an invest- ment. This shift of perspective leads to much more fruitful research questions that have been relatively neglected. We suggest 12 such questions.
FAI 101: Adverse Selection
Clearly, poor households would benefit from access to formal insurance. But why is it so hard to get it to them? One reason is what economists call "adverse selection." Watch the video.
Financial Access 101: Moral Hazard and Microinsurance
Clearly, poor households would benefit from access to formal insurance. But why is it so hard to get it to them? One reason is what economists call "moral hazard." Watch the video.
FAI Video: Shawn Cole Discusses Microinsurance and Factors Affecting Take Up
Economist Shawn Cole discusses findings from several experiments on rainfall insurance in India and index insurance products. In Part 2 of this FAI video conversation, Cole discusses an experiment that was conducted in Gujarat, India. Here the researchers were interested in understanding what were the barriers to adoption of a particular product. The goal of the study is to help farmers manage risks due to failed monsoons when making production decisions.
Shawn Cole Discusses Microinsurance: Investment Impact of Rainfall Insurance
Shawn Cole discusses findings from several experiments on rainfall insurance in India and index insurance products. The goal of the effort is to help farmers manage risks due to failed monsoons when making production decisions.
Price and Information in Life Microinsurance Demand: Experimental Evidence from Mexico
Poor households in developing countries face large and varied risks, but often have inadequate informal tools to manage them. Microinsurance is being developed to create a better alternative, and it should--in theory--be in high demand. Yet take-up of microinsurance remains low. I study the impact of price and information on the demand for life microinsurance among microfinance borrowers of Compartamos in Mexico. I randomly assigned 8,700 borrowers to two of four treatments: (i) no longer receive a base amount of subsidized insurance coverage (high price) or keep the subsidy (low price), and (ii) being informed with a message emphasizing the financial toll of a funeral and how the insurance payoff helps to face it (financial information) or information emphasizing the emotional toll of a funeral on the surviving family (emotional information). On average, eliminating the subsidy led to a decrease in insurance coverage, but the two messages did not impact coverage. The impacts are heterogeneous, however. . .
10 Research Questions
High quality evidence on the state of financial access around the world is advancing rapidly, as the chapters of this book illustrate. A happy consequence of increasing knowledge is the ability to better recognize what we don’t yet know. Here are ten questions, some micro, some macro, that need answers if we are to make informed decisions on how to improve financial access.
Evaluation Fundamentals
Impact evaluations try to measure the change in a participant’s life that occurred because of an intervention. The “intervention” could be a policy, a project, an insurance product, or a specific feature of a product. For instance, the intervention could relate to a particular product feature, such as the extent of coverage, a change of pricing structure, or variations in the distribution channel.
Can Insurers Improve Healthcare Quality? Brief
Using three indicators of quality, the authors investigate whether microinsurance can help improve the quality of healthcare provided to poor patients. The three indicators are: structure (material and human resources available to patients at healthcare facilities), process (what steps are followed in giving care to patients) and outcome (the effects of the care on a patient’s health status). The find that health insurance status is not significantly associated with better quality care as measured by the three dimensions of quality.
Can Insurers Improve Healthcare Quality? Evidence from a Community Microinsurance Scheme in India
We investigate whether microinsurers can help improve the quality of healthcare, and not just its price. We study Indian patients who had a caesarean section, appendectomy, hysterectomy, or abdominal hernia surgery. We compare indicators of facility’s infrastructure; doctor’s qualification and knowledge; process of care; and patient satisfaction. Two thirds of insured patients contacted the insurer about their choice of provider. They are directed towards facilities that are part of the insurer’s network, which have better infrastructure than non-network facilities. Being insured, however, is not significantly associated with receiving better-quality care, even when controlling for several patient and facility characteristics.
Access to Finance: Chapter 2, Handbook of Development Economics, Volume 5
Expanding access to financial services holds the promise to help reduce poverty and spur economic development. But, as a practical matter, commercial banks have faced challenges expanding access to poor and low-income households in developing economies, and nonprofits have had limited reach. We review recent innovations that are improving the quantity and quality of financial access. They are taking possibilities well beyond early models centered on providing “microcredit” for small business investment. We focus on new credit mechanisms and devices that help households manage cash flows, save, and cope with risk. Our eye is on contract designs, product innovations, regulatory policy, and ultimately economic and social impacts. We relate the innovations and empirical evidence to theoretical ideas, drawing links in particular to new work in behavioral economics and to randomized evaluation methods.
Income Smoothing and Consumption Smoothing
Two observations are essential to understanding the market structure of most low-income economies. First, many markets do not exist and, of those that do, many work imperfectly. Second and more optimistically, a wealth of behavioral and institutional responses often emerge to fill in the holes left by market failures. . .