The Psychology of Microinsurance: Small Changes Can Make a Surprising Difference

This paper draws from laboratory and field research examples to present eight recommendations for microinsurance providers. It describes new insights into how households think about losses and gains, weigh present and future tradeoffs, struggle with self-control and are influenced by the way choices are framed.

An important lesson from behavioral economics is that small changes in product design and marketing can make a difference in how and whether financial products are used. The paper draws on insights from research to help insurers navigate improvements in product design, marketing, insurance education, pricing and take-up. The paper presents behavioral tensions that can arise when designing insurance marketing campaigns and products, and eight strategies for overcoming these challenges. They are:

• Keep it simple;
• Frame the loss;
• Facilitate self-control;
• Make future needs salient when people are making investment decisions;
• Undermine overconfidence;
• Access mental accounts;
• Realize the value of zero, because experiments show that people generally prefer zero deductible policies instead of those with cost-sharing mechanisms with respect to insurance;
• Eliminate obstacles to action.