Determinants of microinsurance demand: evidence from a micro life scheme in Indonesia

Abstract

The objective of this research is to identify and evaluate socio-economic determinants of micro life insurance demand in Indonesia. The study is motivated by the fact that, while microinsurance is considered to facilitate poverty alleviation and economic development in emerging economies, take-up rates remain behind projections. To attract the required private capital needed for the provision of financial access and market development, however, high take-up rates are essential to create a commercially viable business opportunity. This study aims to provide insight in customer characteristics which cause actual microinsurance take-up and, thereby, facilitate more effective product design and distribution to seize the opportunities in microinsurance.

For this study a sample of 208 microfinance customers was collected through personally-administered questionnaires in the urban and semi-urban area of Jakarta, Indonesia. All interviewees were previously offered to participate in a micro life insurance program. About half of the sample decided to participate while the other half abstained from the program. Based on the socio-economic household data gathered in the field study, factors influencing the demand for microinsurance are determined through econometric analysis.

The results of this thesis, based on marginal effects probit regression analysis, support earlier findings regarding the positive influence of education and household wealth on life insurance uptake. In addition, economic capacity measurements deemed more appropriate for low-income households are introduced and corroborate an unambiguous strong positive influence of households' relative economic capacity. Further, positive influence is found for respondents' financial literacy and product understanding as well as client trust attitude and brand recognition. A strong negative life-cycle effect is revealed when taking into account economic self-sufficiency of dependents.