The Dynamics of Microinsurance Demand in Developing Countries Under Liquidity Constraints and Insurer Default Risk

18 Pages Posted: 19 Feb 2016

See all articles by Yanyan Liu

Yanyan Liu

International Food Policy Research Institute (IFPRI)

Robert J. Myers

Michigan State University - Department of Agricultural Economics

Date Written: March 2016

Abstract

We study the dynamics of microinsurance demand by risk‐averse agents who can borrow and lend subject to a liquidity constraint, and also perceive a risk of insurer default. Liquidity constraints and perceived insurer default both reduce the demand for insurance, possibly leading to nonparticipation. We also evaluate an alternative insurance design that allows agents to delay premium payment until the end of the insured period when income is realized and indemnities are paid. We show this alternative design increases insurance take‐up by relaxing the liquidity constraint and ameliorating concerns about insurer default. We also investigate the value of delayed premium payment, and the importance of the associated problem of reneging if the insured event does not occur, under a range of conditions.

Suggested Citation

Liu, Yanyan and Myers, Robert J., The Dynamics of Microinsurance Demand in Developing Countries Under Liquidity Constraints and Insurer Default Risk (March 2016). Journal of Risk and Insurance, Vol. 83, Issue 1, pp. 121-138, 2016. Available at SSRN: https://ssrn.com/abstract=2734469 or http://dx.doi.org/10.1111/jori.12044

Yanyan Liu (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Robert J. Myers

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States
517-432-3649 (Phone)

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