Participation in Micro Life Insurance and the Use of Other Financial Services in Ghana

Abstract

This article investigates households' decisions to take up micro life insurance and to use other financial services. It estimates a multivariate probit model based on Ghanaian household survey data. The results suggest a mutually reinforcing relationship between the use of insurance and the use of other formal financial services. Risk-averse households and households who consider themselves more exposed to risk than others are found to be less likely to participate in insurance. This suggests that insurance is considered to be risky. There is indicative evidence for adverse selection and a life-cycle effect in the uptake of insurance.

Uptake of Multiple Microinsurance Schemes: Evidence from Sri Lanka

“…This indicates that households may not see insurance as an additional risk which is related to mistrust in the MFI and its staff or to misunderstanding of the offered microinsurance products. In contradiction to earlier findings by Giesbert et al (2011), we find a positive association of remittances with microinsurance uptake. Further, we find for the three risk-dummies that households who experienced an additional shock are significantly less likely to use microinsurance.…”

“…If the households have differential risks and do not charge a premium equal to the expected marginal cost of insurance, the possible adverse selection can lead to problems in the nature and patterns of participation in the microinsurance schemes. Giesbert et al (2011) find indications of adverse selection in micro life insurance participation.…”

“…although it differs for the tested risks (Giesbert et al 2011, Bendig andArun 2011a). Thus, we control for both the degree of risk aversion and previous risk exposure in our analysis.…”

“…Therefore, it is plausible to assume that better-off households are better able and willing to bear a given amount of risk than are relatively poor households. For developing countries, there is evidence that risk-averse households are less likely to purchase an index-based, agricultural microinsurance (Giné et al 2008) and that households who feel themselves more exposed to risk are less likely to use micro life insurance (Giesbert et al 2011). This may explain why risky households, i.e.…”

“…Asfaw 2003, Bhat and Jain 2006, Jütting 2003, Ito and Kono 2010, Hamid et al 2010, micro life (e.g. Giesbert et al 2011;Arun et al 2012), and on rainfall insurance (e.g. Giné et al 2008, Giné and Yang 2009, Cole et al 2009 have identified determinants of insurance participation in developing countries.…”