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Uptake of Multiple Microinsurance Schemes: Evidence from Sri Lanka

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Abstract

Since it is common among households to use more than one form of microinsurance, this paper estimates the uptake of different kinds of microinsurance by the same population. We use a multivariate probit model which examines the participation in the different forms of insurance simultaneously. By doing this, we can establish whether participation patterns in different types of microinsurance options indicate if the participation in specific insurance schemes is complementary or a substitute. We establish that membership of a microfinance institution means that households are more likely to have purchased an insurance policy. Furthermore, the study describes a need for more inclusive and composite packages of microinsurance products for greater financial inclusion of the poor.

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Notes

  1. For example, Asfaw (2003); Jütting (2003); Bhat and Jain (2006); Ito and Kono (2010); Hamid et al. (2011).

  2. For example, Giesbert et al. (2011); Arun et al. (2012).

  3. For example, Giné et al. (2008); Giné and Yang (2009); Cole et al. (2013).

  4. Eling et al. (2014).

  5. Giné et al. (2008).

  6. Mas-Colell et al. (1995); Giné et al. (2008).

  7. Akerlof (1970); Rothschild and Stiglitz (1976); Browne and Doerpinghaus (1993); Cawley and Philipson (1999).

  8. Giesbert et al. (2011).

  9. Ito and Kono (2010).

  10. Hamid et al. (2011).

  11. Pauly (2004).

  12. Lewis (1989).

  13. Arun and Bendig (2010).

  14. Hurd (1987); Hurd (1994); Inkmann and Michaelides (2010).

  15. Dror et al. (2007).

  16. Khandker (1998); Chankova et al. (2008).

  17. Barsky et al. (1997).

  18. Eling et al. (2014).

  19. Bendig and Arun (2011a); Giesbert et al. (2011).

  20. See Arun et al. (2012) for further details.

  21. In our questionnaire we asked the households for the date of the insurance purchase or, in the case of loans, for the date of the loan disbursement. We have no comparable information for savings products and current accounts which are additionally offered by the MFIs. Therefore, we cannot provide comprehensive information on the duration of membership of an MFI.

  22. for a detailed account of the microinsurance sector in Sri Lanka, see Arun et al. (2012).

  23. The index is built by using a principal component factor analysis method on the basis of the following data points/questions described: The questions for the self-perception of exposure to health shocks, weather and environment-related shocks and economic shocks are, for example, for health shocks: “In your opinion, is your household more or less exposed to health shocks/family related shocks compared to other households in your village?” The response categories are then (1) Much more, (2) A bit more, (3) About the same, (4) A bit less, (5) Much less. The question for the households’ own rating of its willingness to take risks is: “How do you see yourself: Are you rather willing or unwilling to take risks? (Imagine a case, where at a certain cost you may receive a benefit, but which is not certain)”. The households were asked to rank their willingness on a scale where the value 0 means “unwilling to take risks” and the value 5 means “willing to take risks”.

  24. Bendig and Arun (2011b).

  25. Jütting (2003).

  26. Waters (1999).

  27. It is important to note that it may be better to create a benchmark value—a reference case—for which the marginal effects are calculated (Cameron and Trivedi, 2009). The reference households were chosen to display two different, but typical, household configurations. The first one is seen as the “highly vulnerable” reference household as its attributes include a female head with low educational attainment, small asset endowment and high exposure to risk. Household (2) is assumed to be the reference for a “less vulnerable” household as its characteristics include smaller size, higher educated head and higher asset endowment than its counterpart in reference (1).

  28. Arun et al. (2012).

  29. Chankova et al. (2008).

  30. Giné et al. (2008); Cole et al. (2013).

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Acknowledgements

The financial support for the research underlying this paper was provided by the British Academy (SG-44036) and we gratefully acknowledge the support of the Institute of Policy Studies of Sri Lanka (IPS) in carrying out the field survey. All errors are our own.

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Appendix

Appendix

See Tables A1 and A2.

Table A1 Definition of explanatory variables for Sri Lanka
Table A2 Multivariate probit results on the type of insurance for Sri Lanka (II)

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Bendig, M., Arun, T. Uptake of Multiple Microinsurance Schemes: Evidence from Sri Lanka. Geneva Pap Risk Insur Issues Pract 41, 205–224 (2016). https://doi.org/10.1057/gpp.2015.36

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