Marketing Complex Financial Products in Emerging Markets: Evidence from Rainfall Insurance in India

Research Team: Sarthak Gaurav, Shawn Cole, Jeremy Tobacman and Thomas van den Aarssen
LEAD Centre: Centre for Microfinance
Focus Area: Insurance & Pensions
Project Geography: Gujarat
Partner: Agricultural Insurance Company of India (AIC), Self Employed Women's Association (SEWA) and the National Bank for Agriculture and Rural Development (NABARD)
Status: Ongoing


Development practitioners and governments across the world have demonstrated a keen interest in crop insurance as a powerful risk mitigation and risk coping mechanism for the developing world’s agricultural households. Index-based rainfall insurance is an innovative financial product which could help households mitigate the adverse effects of irregular, excessive or deficit rainfall. In index-based policies, payouts are dependent on rainfall levels in the growing period hitting pre-specified triggers, rainfall amounts calculated based on historical rainfall data. Structuring the policy to payout based on a factor which affects rainfall rather than yield helps solve incentive problems common to standard crop insurance programs and lowers transaction costs (since there is no need for the insurer to verify claims).

Despite the advantages of such a product, take-up has been relatively low. Some reasons for low participation in insurance could be:

–    practitioners have not yet developed effective marketing techniques
–    farmers lack information and may not trust the insurance company or
–    farmers may not understand the product well.

This project attempts to gauge whether providing financial literacy training on rainfall insurance to agricultural households influences their purchasing decisions.

Methodology and Research Design

The study, based on a sample of 600 households from 15 villages in three coastal districts of Gujarat – Amreli, Bharuch and Bhavnagar, tests whether education and innovative marketing can have a positive impact on the takeup of rainfall insurance. Researchers partnered with an NGO, the Development Support Centre, which helps market rainfall policies underwritten by the Agricultural Insurance Company of India.

Out of the 600 households in the sample, 300 were randomly assigned to a financial literacy treatment – they received an invitation to attend a pre-marketing financial literacy training held in their village. The rest of the sample households constituted the control group – they received no intervention.

After the financial literacy treatment sessions were held in the villages, researchers administered six other independent subtreatments to groups of 47 farmers each. These six treatments were as follows:

1.    A money-back guarantee for the insurance product which guaranteed the household a refund of the full premium amount in case the policy did not payout
2.    Weather forecasts about the quality of upcoming monsoons.
3.    A demonstration of the relationship between millimetres of rainfall and soil moisture
4.    A money–back guarantee, weather forecasts and ‘mm’ demonstration
5.    ‘Mm’ demonstration and weather forecasts
6.    Money-back guarantee and weather forecasts

Prior to providing households with the financial literacy sessions, researchers asked them questions about interest rates, compound interest, inflation and risk diversification and debt literacy to judge their cognitive and financial ability. The financial literacy intervention took the form of village-level lessons conducted by two researcher-trained DSC workers. The first half of each session provided households with general lessons on personal financial management, savings, credit management and insurance with the help of customized materials such as a thirty-minute long video on the relevance of rainfall insurance. In the second half of the sessions, the participants played simulation games to learn about insurance mechanisms.


The financial literacy training led to almost an 8% increase in the takeup of rainfall insurance. Researchers found the financial literacy training the most effective of all the treatments offered. Surprisingly, the money-back guarantee had a limited effect on takeup when it was offered in isolation (despite the fact that it was the most expensive to administer), while the other marketing treatments had little or no significant impact.

These results reinforce the view that individuals educated in financial literacy and insurance are significantly more likely to purchase insurance. While the other treatments were found to be largely ineffective in isolation, a treatment combing all three interventions had substantial effects on takeup.

Policy Implications:

Policymakers could influence the takeup of rainfall insurance through information campaigns. However, the relatively low takeup, even among the most intensely treated group, and the high cost of treatment, suggest that substantial increases in the efficiency of delivery are necessary before rainfall insurance can become a financially sustainable product.

The study provides compelling evidence that financial education can influence behaviour in a representative population.

Randomized experiments can be used to test theories of consumer demand and to assess the cost effectiveness of different marketing programs. Thus, researchers could conduct similar studies to help develop a coherent theory of how financial literacy improves financial decision making

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