Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment

This paper reports results from a large randomized natural field experiment conducted in southwestern China, evaluating the effect of microinsurance on subsequent production. It provides a simple theoretical framework to illustrate how expanded insurance options could potentially affect economic activity.The study analyzes the effect of formal insurance on farmers' production decisions. It also seeks to explain the low takeup rate of formal insurance, despite substantial premium subsidy from the government. Results indicate that:

• Access to formal insurance significantly increases farmers' tendency to raise sows;
• Microinsurance can supplement and strengthen the effects of microfinance by protecting farmers from inherent risk of entrepreneurial activities;
• Trust for government-sponsored insurance products is a significant barrier for farmers' willingness to participate in the insurance program.

Finally, the paper states that overcoming lack of trust should be a crucial consideration in the next wave of microinsurance revolution.