Delayed Premium Payment, Insurance Adoption, and Household Investment in Rural China

Abstract

We conduct a randomized controlled trial to examine the impacts of delayed premium payment on insurance uptake and the subsequent investment decisions among smallholder farmers in rural China. Our results show uptake among those with the delayed payment option is 10% higher than and three times as high as among those without the option. We also find a positive impact of delayed premium payment and insurance adoption on household investment in production, especially higher risk activities.

Measuring farmer time preferences: A systematic literature review for Europe and North America

“…Notwithstanding, there is large withincountry heterogeneity that is far larger than any between-country differences. Anecdotal evidence on time preferences of farmers in developing countries (note that we have not reviewed this literature systematically) (e.g., Alemayehu et al, 2019;Fischer & Wollni, 2018;Kramer & Kunst, 2020) and Asia (e.g., Liu et al, 2020;Mao et al, 2021;Sarwosri & Mußhoff, 2020), show often lower time preferences than revealed in the studies for Europe and North America. For example, subsistence farmers often have elicited discount rates below 10% (e.g., the cattle herders in Mali and Burkina Faso surveyed by Liebenehm and Waibel [2014]).…”

Credit cards and commercial insurance participation: Evidence from urban households in China

“…Insurance is an intangible ‘credence’ good (Gaurav et al, 2011). Lack of trust in the formal financial system has been previously recognised as the most important barrier preventing individuals from insurance adoption (Cole et al, 2013; Giné et al, 2008; Liu et al, 2020). It is particularly relevant in China where legal protections are weaker and financial education level are lower (Cai et al, 2009; Liu et al, 2020; Wang et al, 2021).…”

“…Through a drought insurance experiment in Ethiopia, Belissa et al (2019) find that postponed premium payment enhances insurance take-up substantially. Likewise, through a field experiment in China, Liu et al (2020) find that allowing farmers to defer premium payment leads to more insurance purchase.…”

“…Besides low income, liquidity constraints are another major barrier to insurance participation (Belissa et al, 2019; Gaurav et al, 2011; Giné & Yang, 2009; Liu et al, 2013). Although various factors have been documented to retard insurance participation in China (Liu et al, 2020; Platteau et al, 2017; Wang et al, 2021), it is so far unclear whether the access to unsecured credit – an efficient way to alleviate households' credit constraints – can enhance insurance participation. This paper attempts to answer this question by exploiting the surge of credit cards in China.…”

“…Last, this paper adds to a growing body of studies on the determinants of household demand for insurance in China. A number of determinants have been identified, including financial literacy (Wang et al, 2021), delayed premium payment (Liu et al, 2020), social networks, and information intervention (Cai et al, 2015; Giles et al, 2021). This paper documents credit card access as a new determinant of both the adoption and the renewal of commercial insurance.…”