The dynamics of insurance demand under liquidity constraints and insurer default risk:
AbstractLow demand for micro-insurance has been a prominent problem in developing countries. We study the dynamics of insurance demand by risk-averse farmers who can borrow and lend subject to a credit constraint and who also perceive a risk of insurer default. Credit constraints and the possibility of insurer default both reduce the demand for insurance. We then propose an alternative insurance design that allows farmers to enter an insurance contract while delaying payment of the premium until the end of the insured period. We show how this alternative design can increase insurance take-up by relaxing the liquidity constraint and assuaging farmersâ€™ concerns about insurer default. We also investigate the effects of the associated problem of farmers reneging on their delayed premium payment if the insured event does not occur.
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Bibliographic InfoPaper provided by International Food Policy Research Institute (IFPRI) in its series IFPRI discussion papers with number 1174.
Date of creation: 2012
Date of revision:
Insurance; Agricultural; delayed premium payment; insurance demand; liquidity constraint; insurer default;
This paper has been announced in the following NEP Reports:
- NEP-AGR-2012-06-05 (Agricultural Economics)
- NEP-ALL-2012-06-05 (All new papers)
- NEP-IAS-2012-06-05 (Insurance Economics)
- NEP-MFD-2012-06-05 (Microfinance)
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