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Insuring the Never Before Insured: Explaining Index Insurance Through Financial Education Games

Published by:
Publication date
Number of Pages
Type of Publication:
Working Papers & Briefs
Focus Region:
Focus Topic:
Rural Finance / Insurance
Capacity Development
Type of Risk Managment Option:
Risk transfer
Christopher B. Barrett, Michael R. Carter, Francisco Galarza, Sommarat Chantarat, Andrew Mude, Carolina Trivelli, Stephen Boucher, John McPeak
BASIS, University of Wisconsin-Madison

Insurance is a potential solution to these problems of pervasive and costly risk. Yet, insurance is most notable for its absence in low-income rural areas. While there are many reasons why insurance contracts are not offered in these areas, the innovation of a new generation of financial technologies built around the concept of parametric or index insurance raises the prospect that insurance instruments could be made to sustainably work in low-income environments. It remains to be seen if these index insurance products can resolve the problems of poverty and thin financial markets, yet the first challenge is to innovate and pilot effective, livelihood-focused index insurance contracts for which there is effective demand.

Unfortunately, the complexity of index insurance contracts stands as a potential barrier to creating effective demand. These contracts present particular problems for populations that have little experience with formal insurance, much less complex index-based contracts. Progress requires innovative efforts to enhance the understanding and financial literacy of the people that might purchase and benefit from index insurance. This BASIS Brief details one strategy that aims to solve this problem of financial literacy for those who have never been insured.