Experimental Studies in Microinsurance Markets

Insurance solutions for low-income people - microinsurance - have attracted significant attention from academics and practitioners in several fields. Microinsurance is mainly found in developing countries with a very distinct target population, i.e., the low-income population. Research in development and health economics shows significant impact of microinsurance including society-wide effects. In a historical context, the evolution of microinsurance tracks that of the early twentieth- century insurance markets, e.g., in Northern America, in that formal risk-coping strategies arise to replace or complement the mutual informal assistance schemes of social groups that have been the sole means of coping with risk up to that time.

Development economics and policy sees microinsurance as a potential way of reducing poverty. The insurance industry is interested in the new and potentially large markets. From both perspectives, the success of microinsurance is largely driven by reaching sufficient scale and thus increasing demand. On the supply side, however, financial viability is usually not realized and the value of microinsurance solutions is extremely hard to communicate on the demand side. As of 2009, Lloyd's estimates that only 5 % of the potential microinsurance market has been penetrated. Recent research in this field finds that the relatively low level of demand is a key problem for development of microinsurance markets. The reasons for these low levels of demand, however, are not sufficiently understood and only recently have important factors such as insurance literacy and risk aversion been analyzed. The primary motivation for this research project is thus to better understand the currently low levels of insurance demand as reflected by low willingness to pay by low-income populations around the globe. We aim to contribute to a better understanding of the decision to buy or not to buy microinsurance by means of four research papers from the field of behavioral insurance and using an experimental research design.