Microinsurance and Risk Management: Evidence from Ghana

After the rapid success of microcredit and, to a lesser extent, microsavings in the past decades, microinsurance has been the third financial service to enter emerging financial markets in the developing world. Microinsurance could provide high welfare gains, given that low-income people often lack efficient strategies to manage and cope with risks, such as death, illness, old age, droughts or floods. In light of the low coverage of public security systems in many developing countries, it is seen as a promising innovation that could offer better protection for low-income people. However, little is known about the factors that constrain or facilitate demand to translate into uptake of microinsurance and on the product characteristics and business practices that create value for them. This thesis applies quantitative econometric and qualitative methods – based on own household and individual survey data as well as focus group discussions – to investigate participation patterns and perceived value in micro life insurance in Ghana. The results reveal, first, that household uptake of micro life insurance does not entirely follow the predictions made by standard insurance theories. Informal trust-building mechanisms and subjective risk perceptions turn out to play an important role in the context of information asymmetries and limited experience with formal insurance. Furthermore, there is a mutually reinforcing relationship between micro life insurance and other formal financial services available in the rural and semi-urban study areas in Ghana. At the same time, microinsurance does not substitute informal financial services. Given that households are burdened with a number of other risks besides death and old age, more universal strategies, such as risk sharing within social networks, do not lose their significance. Second, the perceived value of microinsurance consists not only of the expected or experienced benefits and costs, but also of quality, emotional and social dimensions. Perceptions of high or low value are driven by large discrepancies between expectations and experiences, clients’ knowledge about insurance, their interaction with peers, and the availability and effectiveness of alternative risk management options. Third, there are gender-specific patterns of market participation between and within households that are intertwined with the household type and regionally varying sociocultural conditions. Households headed by single women are less likely than other households to purchase micro life insurance, which could be a sign of gender discrimination in the market. However, results on the intra-household level show that women in couples are, in fact, more likely to purchase micro life insurance compared to their husbands. This is found especially in regions dominated by matrilineal societies, in which husbands typically have less control over household decision-making. Results at the intra-household level suggest that the wives’ bargaining power has little influence on their husbands’ decisions to purchase insurance, but increases uptake by the wives themselves. Overall, the results suggest that spousal preferences on insurance differ and that women are an important target group for the provision of micro life insurance