Price and Information Type in Microinsurance Demand: Experimental Evidence from Mexico

Abstract

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 type on the demand for life microinsurance among borrowers of a large microfinance institution in Mexico. Borrowers were assigned in two separate randomizations to a high or low price of insurance coverage, and to information emphasizing the financial or emotional toll of premature death on the remaining family. Increasing the price of coverage by eliminating the subsidy decreased coverage. While the type of information did not impact coverage on average, the nature of the marketing message mattered. The emotional information led to a lower drop in coverage than the financial message among young borrowers, and a larger drop among middle-aged borrowers. The findings add to the literature on how information drives behavior in developing countries, and suggest that information can be a key policy instrument of development policy and household risk management.