Social Networks and Insurance Take-up: Evidence from a Randomized Experiment in China
This paper estimates the role of information in insurance take-up using data from a randomized experiment in rural China where information was either offered directly through financial education or accessed indirectly through social networks.
The experimental design of the study not only allows researchers to identify the causal effect of social networks, but also to differentiate the various channels through which they operate, including improvement of negotiating power, imitation, and social learning of insurance benefits. The results show that:
- Social networks have a large and significant effect on insurance take-up decisions;
- Households are more likely to buy the product if they have more strongly related friends who attended a village meeting that introduced the insurance contract and the benefits of purchasing;
- This effect is mainly driven by social learning of insurance benefits.
The policy implication is that offering financial education to a subset of households in a village community selected for their strong friendship links with others, their recognized farming skills, and leadership roles, and relying on social networks to extend its effect on more farmers through social learning, is an effective way of improving insurance take-up.