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The Determinants of Microinsurance Demand

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Abstract

The purpose of this article is to structure the extant knowledge on the determinants of microinsurance demand in a manner that achieves several outcomes. First is to offer a specific economic structure to the review through use of Outreville’s insurance demand framework. Second is to identify key questions that arise out of structuring the material in this way. In particular, we attempt to clarify the critical open questions in microinsurance demand through use of Outreville’s framework. Third, through comparison with literature on traditional insurance demand, we identify opportunities to understand not only the microinsurance market better, but also the traditional market. To achieve these outcomes, we review the academic literature on microinsurance demand published between 2000 and early 2014 and compare these results with evidence in the literature regarding traditional insurance markets. The review identifies 12 key factors affecting microinsurance demand, and further highlights that research focused on the role of contract performance (including basis risk and quality), trust, financial literacy and informal risk-sharing mechanisms may be most fruitful in expanding microinsurance markets.

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Notes

  1. See Fafchamps and Lund (2003).

  2. See, among others, Dror and Jacquier (1999); Morduch (2006); Giesbert et al. (2011); Biener and Eling (2012); De Bock and Gelade (2012).

  3. See Cole et al. (2013); Giné et al. (2008); Jowett (2003); Thornton et al. (2010).

  4. See, specifically, De Bock and Gelade (2012) and Matul et al. (2013). De Bock and Gelade (2012) provide a literature review that focuses on consumer comprehension and how microinsurance demand is affected by credit availability, risk-sharing groups, and other substitutes for formal insurance. Matul et al. (2013) provide another practitioner-oriented review paper and debunk ten myths of microinsurance demand. For example, they show that gender, age and risk aversion do not affect demand significantly. Moreover, the second chapter of Morsink’s (2012) dissertation provides an excellent review of theories about insurance demand and an analysis of demand determinants in empirical microinsurance demand studies.

  5. See Outreville (2013).

  6. For a more comprehensive distinction between microinsurance and traditional insurance, see Lloyd’s (2009).

  7. See Mobarak and Rosenzweig (2012).

  8. See Jowett (2003); Arnott and Stiglitz (1991).

  9. For an example of possible contract non-performance, see Doherty and Schlesinger (1990).

  10. See Biener and Eling (2012).

  11. The take-up rate of subsidised microinsurance products is also much lower than the take-up rate of subsidised insurance products in traditional insurance markets. See, for example, Glauber (2004), who discusses take-up rates in the subsidised U.S. crop insurance (the take-up rate is 80 per cent).

  12. See Clarke (2011); Doherty and Schlesinger (1990).

  13. See Biener and Eling (2012) for the exact methodology.

  14. See Outreville (2013). We note, however, that Outreville’s focus is on cross-national evaluations, which are more focused on macro factors than on micro factors. Zietz (2003), in contrast, considers the literature on life insurance demand within specific markets, focusing on micro factors. We combine the efforts of both authors in constructing our categorisation of the literature.

  15. For instance, Zietz (2003) considers religion under personal and demographic factors. Our categories are intended to be as consistent as possible with those of Outreville (2013). We also note that we refer to empirical studies, not theory papers such as Arnott and Stiglitz (1991).

  16. For a thorough discussion, see Mossin (1968); Ehrlich and Becker (1972); De Bock and Gelade (2012), and Morsink (2012).

  17. See Cole et al. (2013).

  18. See Karlan et al. (2012).

  19. See Dercon et al. (2012).

  20. See Gaurav et al. (2011).

  21. See Thornton et al. (2010).

  22. See Fitzpatrick et al. (2011).

  23. See Bauchet (2012).

  24. See Latortue (2006).

  25. See De Bock and Gelade (2012).

  26. See Schneider and Diop (2004); Zhang et al. (2006).

  27. See Dong et al. (2009).

  28. See Akotey et al. (2011); Tadesse and Brans (2012).

  29. See Akter et al. (2008).

  30. See Babbel (1985); Browne and Kim (1993); Mantis and Farmer (1968) for a more comprehensive review, see Zietz (2003).

  31. See Marquis et al. (2004).

  32. See Aizer (2007); Baicker et al. (2012); Bansak and Raphael (2007).

  33. See Giné et al. (2008).

  34. See Huber (2012).

  35. See Cole et al. (2013); Giné et al. (2008).

  36. See Gollier (2003).

  37. See Clarke (2011).

  38. See Ito and Kono (2010).

  39. See Liu and Myers (2012).

  40. See Liu et al. (2013).

  41. We thank our reviewers for input on these questions.

  42. See Morris et al. (2000).

  43. See Jütting (2003).

  44. See Mossin (1968).

  45. For a more comprehensive review, see Zietz (2003).

  46. See Kouame and Komenan (2012).

  47. See Giesbert et al. (2011).

  48. See Binswanger (1981).

  49. See Holt and Laury (2002).

  50. See Kahneman and Tversky (1979).

  51. See Dercon et al. (2011).

  52. See Giné et al. (2008); Giesbert et al. (2011).

  53. See Outreville (2013); Zietz (2003).

  54. See Cardenas and Carpenter (2008).

  55. Note that the findings are highly contested. See, for example, Henrich et al. (2010); Tanaka et al. (2010); Harrison et al. (2010) and Delavande et al. (2011) for recent results.

  56. See Doherty and Schlesinger (1990).

  57. See Dror and Wiechers (2006).

  58. See Wakker et al. (1997).

  59. See Sommer (1996).

  60. See Outreville (2013); Beck and Webb (2003).

  61. Morsink’s (2012) dissertation offers an extensive and useful discussion of trust, peer effects and networks.

  62. See Schneider (2005).

  63. See Basaza et al. (2008).

  64. See Cai et al. (2009); Cole et al. (2013).

  65. See Zhang et al. (2006).

  66. See Dror et al. (2005); Dror and Wiechers (2006).

  67. See Patt et al. (2009, 2010).

  68. See Morsink and Geurts (2011).

  69. See Cai et al. (2011).

  70. See Giné et al. (2011).

  71. See Sorensen (2006).

  72. See Gheyssens and Günther (2012).

  73. See Cole et al. (2011).

  74. See Morsink (2012).

  75. See Eisenhauer and Halek (1999).

  76. See Bartke and Schwarze (2008); Noussair et al. (2012).

  77. See Beck and Webb (2003); Browne and Kim (1993); Feyen et al. (2013).

  78. See Lusardi and Mitchell (2011).

  79. See Cole et al. (2013); Platteau and Ontiveros (2013).

  80. See Cai et al. (2011); Gaurav et al. (2011); Giné et al. (2011).

  81. See Dercon et al. (2014).

  82. See Hill and Robles (2011).

  83. See Cai and Song (2013); Norton et al. (2012); Patt et al. (2009, 2010).

  84. See Clarke and Kalani (2012).

  85. See Bonan et al. (2012).

  86. See Schultz et al. (2013).

  87. See Bayer et al. (2009).

  88. See Akter et al. (2008); Chen et al. (2013); Huber (2012); Jehu-Appiah et al. (2012); Jowett (2003).

  89. See Cole et al. (2013); Giné et al. (2008).

  90. See Lin (2009).

  91. See Cappelletti et al. (2013); Hecht and Hanewald (2010).

  92. See Truett and Truett (1990); Li et al. (2007).

  93. See Browne and Kim (1993).

  94. For a comprehensive list of studies, see Zietz (2003).

  95. See Fafchamps and Lund (2003); Morduch (1999).

  96. See Arnott and Stiglitz (1991).

  97. See Jowett (2003).

  98. See Landmann et al. (2012).

  99. An assessable mutual is one in which the insurer is able to request additional contributions from the policyholders after conclusion of the policy contract period when full loss and cost information is available.

  100. For an extensive list of studies, see Zietz (2003).

  101. See Browne and Kim (1993); Bernheim (1991).

  102. See Rejda et al. (1987); Lewis (1989).

  103. See Cohen and Sebstad (2003); Mathauer et al. (2008).

  104. See De Allegri et al. (2006).

  105. See Criel and Waelkens (2003).

  106. See Mathauer et al. (2008).

  107. See Jehu-Appiah et al. (2012).

  108. See Nguyen and Knowles (2010).

  109. See Dror et al. (2007).

  110. See Costa and Garcia (2003).

  111. We note that the issue considered by Costa and Garcia is complex, incorporating elements of voluntary health insurance, national universal coverage, waiting lists, adverse selection and moral hazard.

  112. See Arun et al. (2012).

  113. See Arun and Bendig (2010).

  114. See Tversky and Kahneman (1974).

  115. See Cai and Song (2013).

  116. See Galarza and Carter (2010).

  117. See Johnson et al. (1993); Kunreuther (1996); Kunreuther and Pauly (2005).

  118. See Browne and Kim (1993) among others.

  119. See Cao and Zhang (2012); Chen et al. (2013).

  120. See Truett and Truett (1990).

  121. See Bernheim (1991); Chen et al. (2001).

  122. See Gandolfi and Miners (1996).

  123. See Cohen and Einav (2007).

  124. See Halek and Eisenhauer (2001).

  125. See Borghans et al. (2009); Eckel and Grossman (2008); Cohen and Einav (2007). Eckel and Grossman (2008) note that field studies often conclude that women are more risk averse than men, whereas laboratory experiment findings are less conclusive.

  126. See Chankova et al. (2008); Nguyen and Knowles (2010).

  127. See Bonan et al. (2012); De Allegri et al. (2006).

  128. See Zietz (2003).

  129. See Dror and Preker (2002).

  130. See, for example, Bonnevay et al. (2002); Dror and Armstrong (2006); Biener and Eling (2012).

  131. Older work, such as Berger et al. (1992) and Lewis and Murdock (1996), discusses the link between reinsurance availability and insurance demand, especially in the context of the U.S. liability crisis.

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Authors and Affiliations

  1. Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, St. Gallen 9010, Switzerland

    Martin Eling & Shailee Pradhan

  2. Wisconsin School of Business, University of Wisconsin‐Madison, 975 University Avenue, Grainger Hall, Madison, WI 53706‐1323, U.S.A.

    Joan T Schmit

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  1. Martin Eling
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Correspondence to Joan T Schmit.

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Eling, M., Pradhan, S. & Schmit, J. The Determinants of Microinsurance Demand. Geneva Pap Risk Insur Issues Pract 39, 224–263 (2014). https://doi.org/10.1057/gpp.2014.5

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