Insurance Renewal (Cai)

Question 1

What do we find in general regarding renewals of insurance?

Answer 1

Renewal rates are low

Question 2

What affects insurance renewal (2)

Answer 2

Village payout per policy

Individual payout received (share info so others buy too)

But Mean village revenue lost due to crop loss - not an influence!

Question 3

Positive effects of higher subsidies (2)

Answer 3

Habit formation - start discounted because of subsidy, then form habit of usage so when price increases they buy e.g like uber eats with discounts.

Higher immediate coverage & opportunities to learn

Question 4

Negatives of higher subsidies (2)

Answer 4

Lower learning because subsidies may undermine usage (e.g if free, may undervalue it, recall bednets case) (opposes 2nd pro)

Price anchoring - can be hard to increase prices once subsidised. (Opposes habit formation)

Question 5

Cai et al

Research design: also how long, and what else was considered? (Hint: education)

Answer 5

Year 1: some get insurance for free, others pay at 70% discount.

Year 2: randomised price

Collected data for 4 years
Randomised financial education in year 1

Question 6

Findings of 2 groups, and their elasticities!

Answer 6

Year 1 subsidies (free insurance) increased demand in year 2 : (habit adoption!) , and if receive payoff, more likely to renew!

No change in price elasticities (price does not affect take up)

For people paid for insurance (at 70%) and who received payouts increase insurance renewals even more. (Since pay attention to outcomes since we have bought insurance, so more likely to see it’s importance/value when a payoff is received, thus renew)

Also this group: payouts reduce price elasticity (become less responsive to price rises, since see values now!)

Question 7

So summarise this result

B) evidence for price anchoring

Answer 7

Free insurance increases the likelihood of getting insurance (habit adoption)

However, they pay less attention to outcomes since it was free! Reduced salience of payouts.
Lower future demand if there is a payout in year 1 (compared to paid group)
increases future demand if there is NO payout in year 1 (i dont understand this still, maybe just stick to last fc)

▶ Little evidence of price anchoring based on year 1 subsidy (so was easy to start charging/increase price)

Question 8

Long term result

Answer 8

A payout in year 1 has a long term effect on subsequent take up (3 years) , but only for farmers who received financial education about insurance. (It was randomised)

For those who don’t, effect decays over time.

Question 9

So what should be considered in policy for subsidies

Answer 9

Optimal subsidy design should cover frequency of payouts. (Since payouts are a signalling tool for agents to renew!)

Combinations with complements to maintain adoption in the long term e.g financial education