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Barriers to Household Risk Management: Evidence from India
4 Apr 2009, Cole, S., Giné, X., Tobacman, J., Topalova, P., Townsend, R. & Vickery, J.

Analyzing determinants of insurance participation

This paper presents field experiment results of rainfall insurance participation in two regions of India, in an attempt to identify key barriers to household participation in risk management products.

Study results indicate that household purchase rates are price-elastic. Findings indicate that:

Minimizing transaction and administrative costs, and fostering competition amongst insurance providers would increase insurance penetration rates;
Random shocks to cash-on-hand have a very large effect on participation, suggestive of an important role for credit constraints;
Trust is important for financial market participation;
Mixed evidence that subtle psychological manipulations affect purchase is seen;
Modest amount of financial education does not change participation decisions.

The results suggest that it may take a significant amount of time, and substantial marketing efforts, to increase adoption of risk management tools at the household level. The paper recommends technological advances, and contractual improvements, such as introducing local information revelation through joint liability models, to improve insurance products.

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Journal Volume/Pages:
59