Examining the Effects of Crop Price Insurance for Farmers in Ghana

Policy Issue:
Many small-scale farmers in the developing world face significant income uncertainty, and rural farmers who live from harvest to harvest don’t have much room for error. Variables beyond the farmers’ control, such as fluctuating crop prices, can make a significant difference in how much a family earns for the year.  Farmers may be unwilling to take on additional risks by borrowing and making long-term investments due this uncertainty. This reluctance is thought to contribute to the decision of many farmers not to invest in technologies such as hybrid seeds, fertilizer, or irrigation that could potentially improve crop yields. Many lenders are also extremely wary of extending credit to farmers, fearful that they will inherit the risks inherent to farming. Crop price insurance could help solve this problem, reducing the risk to farmers and providing them with encouragement to make investments in their farms. Lenders, too, may feel more confident in lending to farmers with greater income certainty, facilitating even more capital investments.
Context of the Evaluation:
In Ghana, 50 percent of the rural population lives in poverty. In the Eastern Region where Mumuadu Rural Bank (MRB) operates, an estimated 70 percent of households make a living in the agricultural sector, but agricultural loans make up only 2 percent of the bank’s loan portfolio. Focus groups with maize and eggplant farmers in the area revealed that farmers were hesitant to borrow for fear that fluctuations in crop prices could force them to default. Rainfall fluctuations, typically an important source of risk for farmers, are not a great concern in this part of Ghana. The prices offered for traded crops, however, do fluctuate greatly. Information gathered in baseline surveys suggested that there was a potential but untapped market for crop price insurance: farmers in the area served by MRB expressed that they would be willing to pay to guarantee a certain minimum crop price. Despite this encouraging baseline finding, banks and insurance providers face the challenge that insurance is not a commonly understood concept among farmers in the region.
Details of Intervention:
Researchers developed an agricultural loan product in coordination with MRB that had an insurance component that partially indemnified farmers against low crop prices. Specifically, if crop prices at harvest dropped below a set price floor (the 10th percentile of historical prices for eggplant and the 7th percentile for historical maize prices), the bank would forgive 50 percent of the loan and interest payments. Borrowers were not required to pay any premium for the insurance product. The goal of incorporating insurance into the loan product was to reduce farmers’ risk in borrowing to invest in agriculture inputs. The intervention targeted maize and eggplant farmers in particular because the crops are both commonly grown in the region and subject to volatile (but historically well documented) prices.
Standard Mumuadu procedure is to invite farmers to meet in a group with Mumuadu employees to discuss the bank’s financial services, and to encourage farmers to come to a branch to apply for a loan. The average loan size is approximately US$159, which represents a significant change in cash flow for the borrower. For this project, Mumuadu employees approached community leaders to obtain a list of all maize and eggplant farmers in the village. The same community leaders then invited farmers to attend one of the bank’s information sessions. Farmers on the list were randomly assigned to one of four groups, each of which received a variation on the Mumuadu marketing pitch. The four groups were:
  1. Farmers who were offered the standard Mumuadu loan product;
  2. Farmers who were offered the Mumuadu loan product with complimentary crop price insurance;
  3. Farmers who received financial literacy training, before being offered the standard Mumuadu loan product;
  4. Farmers who received financial literacy training, before being offered the Mumuadu loan product with complimentary crop price insurance.
Prior to the marketing of the loans, Mumuadu employees conducted a survey of the farmers, gathering information relating to their credit history, risk perception, financial management skills, and cognitive ability. An analysis of baseline data, bank administrative data, and a followup survey that focused on farmer investment decisions allowed researchers to draw conclusions on the effect of crop price insurance on borrower behavior and agricultural investment in Ghana.
Take up of loans among farmers was quite high, with 86 percent of farmers in the comparison groups choosing to borrow and 92 percent of farmers in the treatment groups taking out a loan.  This high take up across both treatment and control groups made an analysis of the features that predicted take up difficult.  In fact, the researchers found no systematic difference across the treatment and control groups when considering which features predicted borrowing. Overall, those who borrowed tended to be older, with higher scores on tests of cognitive ability.  They were also more likely to have a record of previous borrowing.  
Apart from predictors of borrowing, researchers were interested in whether crop price insurance changed farmers’ investment behavior. There is evidence that it did, but not overwhelmingly. The small sample and high take up across both groups may have played a role in this outcome. Farmers offered the insurance spent 17.9 percentage points more on agricultural chemicals (mostly fertilizer) than those who had not been offered the product. There was also a trend towards growing more eggplants and less maize among these farmers. Farmers offered the insurance were also between 15 and 25 percent more likely to bring their produce to markets rather than sell to brokers who come to pick up the crop. Anecdotally, it is believed that the so-called “farmgate” sellers offer guaranteed purchase contracts, but at lower prices locked in before harvest. Selling in the market, on the other hand, is a potentially more profitable but riskier option.  
There are a number of potential reasons why the researchers did not find large effects of the crop price insurance product on either or take up or investment, and further research in necessary to determine their roles. It is uncertain, for example, whether farmers truly understood the benefits of the insurance. Farmers may also have been reluctant to make long term investments changes before an insurance product demonstrates an established presence in the area. Alternatively, crop price uncertainty may not be as important of an indicator of investment decisions as previously thought. Further research, with a larger sample size, is needed to better understand the roles of risk, financial literacy, and product design in determining microinsurance impact.

Credit with Health Insurance: Evidence from the Philippines

The addition of health insurance to microcredit products is increasingly popular; but is it sustainable for microfinance institutions? This study complements other IPA research on hospitalization insurance in the Philippines and should provide important policy lessons on providing public services. We partner with Green Bank to evaluate the impact of providing access to the national health insurance program (PhilHealth) among microfinance clients.  Anecdotal evidence from Green Bank field staff suggests that illness among clients and their families is one of the biggest causes of delinquency.  The PhilHealth program offers an opportunity to reduce clients' vulnerability to unexpected health shocks. 

Policy Issue:
Health shocks, such as illness or injury, have the potential to cause significant financial strain for low income households, possibly contributing to late payment or default among microcredit borrowers. Insurance could protect households from health shocks, but is unavailable to many in developing countries. High transaction costs and information problems complicate efforts to offer health insurance in a cost-effective way. There is also potential for moral hazard: once clients become insured, they may be less inclined to care for their health. Adverse selection may also occur, as clients predisposed to sickness may be those most willing to purchase insurance, dampening the profitability of insurers. But research has failed to produce a consensus on the impact of adverse selection and moral hazard for insurers in the developing world. How will these impact the market for health insurance? And how will health insurance impact the lives of microcredit clients?
Context of the Evaluation: 
The majority of residents in the Visayas and Northern Mindanao regions of the Philippines live in small towns and rural villages. A large for-profit bank, The Green Bank of Caraga, has been a strong presence in these regions for the past decade. The majority of microfinance clients they service engage in small-scale sales or work as tailors, drivers of local transport, and operators of bakeshops and roadside eateries. Anecdotal information suggests that health shocks are a leading cause of default and drop-out among their clients. Most of the respondents in this study reported that their ability work or do related productive activities was restricted at least some of the time.
Details of the Intervention: 
Researchers worked with the health insurer Philippine Health Insurance Corporation (PhilHealth), which offers the KaSAPI program to help organizations such as microfinance institutions provide affordable health insurance to their members. KaSAPI provided information about the availability and benefits of the insurance to microfinance clients through a marketing campaign. Bank clients were able to use existing savings or loan proceeds to pay for the insurance premium of 300 Philippine Pesos (approximately US$6) per quarter.
Clients were randomly assigned to compulsory insurance, voluntary insurance, or no insurance to serve as a comparison. For clients in the voluntary treatment group, loan officers presented the schedule of PhilHealth benefits and explained that the bank was offering KaSAPI as an optional service for its clients. Premiums were deducted from the loan proceeds. For clients in the compulsory treatment group, loan officers presented PhilHealth materials but also explained that PhilHealth was now a requirement to continue participating in the lending program. Clients’ loans in compulsory PhilHealth treatment group were not released unless they agreed to the premium deduction from their loan proceeds.
End line surveys will establish whether access to health insurance increased risk-taking behavior, if it improved the health status of beneficiaries and if formal insurance crowded out informal insurance arrangements. Evidence will also reveal how health insurance affected institutional outcomes such as profit, client retention, and default.
Results and Policy Lessons:
Results forthcoming. 

Demand for Hospital Insurance in the Philippines

We partner with Green Bank to assess the demand for hospital insurance among microfinance clients.  Green Bank offered the insurance to clients at randomly assigned premiums.  By observing the take-up rates at different prices, we can measure the price sensitivity.   We also collect an extensive data on demographics and risk characteristics of the individuals in the sample, which allows for an examination of adverse selection in the insurance market (risky individuals are less price sensitive than risk-adverse individuals).

The impact of information asymmetries on insurance markets is important in theory but ambiguous in practice.  Generations of studies have failed to produce a consensus on the presence, absence, or magnitude of adverse selection and moral hazard in most markets.   While an increasing number of microfinance institutions offer insurance products to their clients as an add-on, there are few empirical studies on the impact of expanding access to health or hospitalization insurance in developing country contexts.

The sample of our study includes 2,036 existing clients under the Green Bank's individual-lending program (TREES) in 10 branches of Northern Mindanao and Caraga regions. 

Insurance Against Cognitive Droughts: The Psychology of Water Scarcity and Insurance

Recent research suggests that droughts may impact farmers’ cognition in addition to their agricultural income. As water becomes scarcer and the risk of a poor harvest increases, farmers may focus so much attention on the availability of water that they perform worse on other mental tasks. In Brazil, researchers are studying the cognitive impacts of drought to understand if rainfall insurance can prevent these effects by reducing farmers’ potential for a significant loss of income during a drought.
Policy Issue:
Natural disasters can have lasting impacts that continue to harm communities long after the direct economic effects have dissipated. Droughts in particular have been linked to higher infant mortality and life-long reductions in educational and wage attainment for those born during or directly after a drought.12 Recent research indicates that droughts may also harm farmers’ cognition in the short term through a process known as “tunneling”.3 As water becomes scarcer and the risk of a poor harvest increases, farmers may focus so much attention on the availability of water that they perform worse on other mental tasks. Droughts and other natural disasters may then lead to less than ideal economic choices at exactly the time when it is most crucial for farmers to allocate resources in the most efficient way. If the risk of drought can bring about tunneling, can tools that mitigate the associated economic risk also limit its cognitive effects? Researchers are testing if agricultural insurance can benefit farmers, even before they receive a premium payout, by helping to reduce the cognitive impacts of the threat of drought.
In Ceará, a poor and drought-prone state in Northeast Brazil, 60 percent of municipalities have received below-normal rainfall over the past four years. Preliminary research seems to indicate that farmers in these areas may indeed be focusing their attention on water scarcity to the detriment of other cognitive tasks. In particular, farmers in areas that received below-normal rainfall overestimated crop prices when primed with an  SMS message about the amount of rainfall their area received, even after being informed of the correct crop prices. Such errors could have serious implications for how households decide to sell their crops and plan their expenses.
In response to the prevalence of drought, particularly in the Northeast, the Brazilian federal government operates a rainfall insurance program to help farmers in the case of extreme, municipal-wide agricultural losses. The standard insurance plan supplies farmers in municipalities that face agricultural losses of 50 percent or greater with five installments of BRL170 (about US $65) over the five months after the harvest period. The program is well subscribed, with about 90 percent of farmers in the area utilizing the standard insurance plan.
Description of the Intervention:
Researchers are partnering with Ceará State’s Foundation for Meteorology and Water Resources and the Rural Development Secretariat of Ceará to evaluate the cognitive impacts of a supplemental state insurance program that provides additional help to farmers. The product pays out an additional BRL 170 to farmers, on top of the payments they receive from the existing public insurance program, in municipalities that suffer greater than 70 percent losses from drought. In 2013, the municipalities in three out of the 12 regions in Ceará met this criterion, with a similar forecast in the study year. 
The study recruited 4,085 farmers across 50 municipalities in Ceará to participate in the study. The researchers then randomly selected 1,192 farmers to receive an offer for  the free supplemental insurance program, while the other 2,893 were not offered any additional insurance. All participants are being surveyed six times over the phone through an interactive voice response system. During each call, half of the participants were randomly selected listen to a message that primed them about droughts in their municipality. The other half of participants listened to a neutral message.
Through a series of monthly phone and in person surveys, the researchers are measuring if the priming elicits reduced performance on standard measures of cognitive function for water- and non-water related mental tasks. If this is the case, they will also be able to measure if the additional insurance product is able to mitigate the loss in performance. The researchers are also measuring if the additional insurance and priming messages affect how farmers perceive the accuracy of different rain forecasting services and how those predictions influence farmers’ expectations and economic decisions. The monthly surveys are being conducted over the course of the five-month growing season in order to measure how the effects of drought, insurance, and priming change as the planning season progresses and people learn if they will face below-average rainfall.
Results forthcoming.
1 Shah, Manisha and Bryce Millett Steinberg. 2013. “Drought Of Opportunities: Contemporaneous And Long Term Impacts Of Rainfall Shocks On Human Capital.” Working Paper.
Rocha, Rudi and Rodrigo R. Soares. 2012. “Water Scarcity and Birth Outcomes in the Brazilian Semiarid.” Working Paper.
3 Mani, Anandi, Sendhil Mullainathan, Eldar Shafir, and Jiayng Zhao. 2013. “Poverty impedes cognitive function”, Science, 341, 976-980.

Savings Devices and Weather Insurance for Farmers in Senegal and Burkina Faso

Farmers in Sub-Saharan Africa, especially those in the Sahel region, face a wide range risks to their welfare and livelihoods, such as drought, price fluctuations, and family illness. This study in Burkina Faso and Senegal evaluated the impact of weather insurance and three savings devices on a variety of investment and welfare outcomes, and tested if demand for the products differed among men and women. Farmers who purchased insurance realized higher average yields and were better able to manage food insecurity and shocks than those who used the savings devices offered. Female farmers were less likely to invest in the insurance, however, suggesting that gender differences in demand for financial products may disadvantage women.

Policy Issue:                                                                                                                       

Farmers in many developing countries are subject to a multitude of hazards, from droughts, to price dips, to illness. In West Africa, for example, almost every rural household manages farmland and is exposed to the risk of unpredictable rainfall.1 Research indicates that poor, rural households are unable to fully insure against such shocks,2 and that an inability to manage risks have long-run welfare implications.3 While there is a fast-growing policy interest in offering financial products to help rural households manage risk, the evidence is still scant as to which products are the most effective. A combination of financial products may allow households to best manage multiple shocks. While weather insurance may help rural households manage the impact of widespread drought, it will not help a farmer manage losses localized to his fields. Similarly, improved access to savings accounts may allow households to quickly respond to unexpected illness, but it will have little value in helping households manage large or repeated shocks, like drought. This study contributes to a fast-growing body of research on the demand for, and impact of, financial instruments that help households manage risk.  

Context of the Evaluation:                                                                                                      

The Sahel, the belt of land that lies along the southern edge of the Sahara desert, is one of the poorest and most vulnerable regions in the world. With low rainfall, frequent droughts, floods, and now, desertification, the region is a very a difficult and risky place to farm. Yet agriculture is the main source of livelihood for the majority of people in the Sahelien countries of Burkina Faso, Chad, Mali, Mauritania, Niger and Senegal. Not surprisingly, farming families in this region are prone to food insecurity and malnutrition.4 Most participants in this study cultivated less than six hectares of land.

Details of the Intervention:                                                                                                   

Researchers evaluated and compared the impact of weather insurance and three savings devices on farm inputs, agricultural output, and household welfare, and tested if demand for the products is different among men and women. The randomized evaluation was conducted with approximately 800 individuals in rural areas of Senegal and Burkina, specifically in Kaffrine Region (Senegal) and around Bobo-Dioulasso (Burkina Faso).

The evaluation was conducted with 14 rotating savings and credit associations (ROSCAs) and 17 farmers’ groups. ROSCAS had to hold regular meetings in order to be eligible for the study. ROSCAS in both countries were only composed of women, while farmers groups were entirely male in Senegal and mixed in Burkina Faso.

Twenty participants at a time were invited to sessions where they received 6,000 CFA (about $12), information about a certain product or financial device, and the option to allocate some or all of the money to the financial product offered to them.5 At each session, the researchers randomly assigned individuals to be offered one of four products:

1)    Insurance: An index insurance product that provided protection against too little rainfall for the main crop in the area (groundnuts in Senegal, maize in Burkina Faso).

2)    Low-commitment savings for inputs: Participants were encouraged to save for agricultural inputs through earmarking. They placed money for agricultural inputs in an envelope labeled “agricultural savings”, kept at home

3)    High-commitment savings for inputs: Participants placed money for agricultural inputs in an envelope labeled “agricultural savings” and the treasurer of the ROSCA or farmers group kept the envelope. To withdraw money the participant had to go through the treasurer and record the amount of money withdrawn and for what purpose. The treasurer of the group was encouraged not to give out the money until the input fair one month later. Participants earned interest on the savings, with varied interest rates across experimental sessions.

4)    High-commitment emergency savings: Participants placed money for emergency expenses in an envelope labeled “emergency savings” that was managed by the treasurer of the ROSCA or farmers group. All withdraws took place through the treasurer, who was encouraged to only give out the money for emergency purposes. Participants earned interest on the savings, with varied interest rates across experimental sessions.

One month after the original experimental session, participants attended fairs where they were given the option of purchasing inputs. Participants in Groups 3 and 4 received the remaining money that had saved with the group treasurer and any interest that was due to them. Participants in Group 4 (savings for emergencies) were offered the opportunity to save again with the group treasurer for further safe keeping over a three-month period at the same interest rate as before. Outcomes were measured one month and six months after offering the insurance and savings devices (during the growing season and after harvest).

Results and Policy Lessons:                                                                                             

Demand for the products: Demand for insurance was significantly higher than for the savings devices. A majority of individuals offered the emergency savings product invested more than 4,000FCFA. In Burkina Faso, most participants offered the emergency savings device at the experimental session invested the entire lump sum they received. In contrast, a majority of individuals offered the insurance product invested amounts lower than 1,500 FCFA.

Farm inputs and output: The average input use and production behavior of those offered insurance and those offered savings treatments were not significantly different on average. However, those who actually purchased insurance invested significantly more in agricultural inputs than those who did not. Higher use of inputs also resulted in higher yields for those who purchased insurance. Investing an additional 1000FCFA (US$1.6) in weather insurance led to a 10 percent increase in yields.

Household welfare: Individuals offered the insurance product were better able to use their own savings to manage shocks that occurred during the study period (4 percentage points higher), relative to those offered one of the savings products. The savings devices did not produce a significant increase in household savings, food security, or consumption.

Gender differences: Women invested significantly less in the insurance product, almost 30 percent less. Given the positive impacts of purchasing insurance on agricultural investment, yields, and welfare, the results suggest that this lower take-up of agricultural insurance disadvantages women.

Researchers hypothesize the gender differences stem from the higher levels of health-related risks women face, such as the risks of childbirth or risks of lost income as a result of caring for sick children. In an environment in which these costs are uninsured and fall primarily on women, a rainfall insurance product carries less value for women than for men.

Further work is needed to understand whether this is indeed the main factor behind the gender difference in demand and, if it is, to understand how financial products can be better designed to meet the different risk needs of women.

[1] Karlan, Dean, Isaac Osei-Akoto, Robert Osei, and Chris Udry. "Examining underinvestment in agriculture: Measuring returns to capital and insurance." à paraître (2011).

[2]Townsend, R.M. 1994. Risk and Insurance in Village India." Econometrica: Journal of the Econometric Society, 62(3): 539-591.

[3]Dercon, Stefan. "Growth and shocks: evidence from rural Ethiopia." Journal of Development Economics 74, no. 2 (2004): 309-329.

[4] World Bank. “Transforming Agriculture in the Sahel.” Available at: http://www.worldbank.org/content/dam/Worldbank/document/Africa/transforming-agriculture-in-the-sahel-background-note-english.pdf

Examining Underinvestment in Agriculture: Returns to Capital and Insurance Among Farmers in Ghana

Risk, rather than a lack of capital, appears to drive underinvestment in agriculture in Northern Ghana - when farmers were provided with weather insurance they spent more on inputs such as chemicals, land preparation, and labor.

Policy Issues:

Underinvestment in agricultural inputs such as fertilizer, hybrid seeds, or labor is thought to drive low crop yields in Africa and other parts of the developing world. Several factors may help explain why farmers fail to invest in such potentially profitable inputs. It is possible that they are wary of the riskiness of adopting new agricultural methods or tools—if they invest and their crops still fail, they will have even less money than if they had not invested at all. Farmers may also lack the capital necessary to purchase these inputs, and be unable to obtain credit to finance investment in their farms. Because the returns to using new technologies can be so high, encouraging use among farmers has the potential to greatly improve their welfare, but financial institutions and policymakers need to first understand what factors are truly driving underinvestment in agriculture.


The climate of northern Ghana’s savannah region has a single short wet season, with high annual variation in rainfall. This kind of weather pattern creates great risk for farmers who depend on the weather for their livelihood, particularly when agriculture is primarily rain-fed, as it is in this area. There is strong evidence that shocks in the amount of rainfall translate directly into consumption fluctuations for farmers, and so investment in new agricultural technologies or methods has the potential to significantly affect welfare. Throughout Ghana, the average farmer uses only 7.4 kg of fertilizer per hectare, while in South Asia fertilizer use averages more than 100 kg per hectare. Initial surveys in northern Ghana revealed that the median farmer participating in this study did not use any chemical inputs on their crops, often citing lack of money or concerns regarding weather risk as key obstacles preventing investment.

Description of the Intervention:

In the first year of the study, researchers tested the relative importance of capital and risk in driving farmers’ investment behavior. From a total of 502 households, 117 were randomly selected to receive a cash grant to fund agricultural inputs; these farmers received GHC 60 (approximately US$45) per acre for up to 15 acres, delivered at a time of their choosing. Another 135 randomly selected households received a grant for an insurance scheme that paid roughly GHC 100 (US$75) per acre of maize if rainfall at a local weather station went above or below specified thresholds. Ninety-five households received both the cash grant and the insurance grant, while 155 households received no additional services and formed the comparison group.

In the second year, researchers tested different prices for rainfall insurance among the original sample households, plus households in an additional twelve communities. Households were visited up to four times by marketers: during the first visit they were informed about the product, during the second visit they were asked to sign the contract and pay premiums, during the third visit the marketer issued a policyholder certificate, and during a fourth visit an auditor verified their understanding of the product. The price that people were offered for insurance was randomly assigned at the community level: households in the original sample would be offered rainfall insurance at a cost of either 1 GHC or 4 GHC (approximately US$0.75 or US$3), while in the newly added communities, households would be offered insurance at either the market price of GHC 12-14, or the actuarially fair price of GHC 8-9.5.

In year three, the pricing experiment continued in collaboration with the Ghana Agricultural Insurance Programme (GAIP), to market their drought-indexed insurance. Because this product was more complex, scripts used at the four marketing visits were updated to make it more understandable. Pricing of the insurance was again randomized at the community level, with 23 communities receiving the market price, 23 communities receiving the actuarially fair price, and 26 communities receiving a subsidized price.


Importance of Capital vs. Risk: Results from the first year suggest that risk, rather than capital, was the major constraint on investment among farmers in this sample. Farmers who received the insurance grant increased their expenditure on farm chemicals, and also brought more acres of land under cultivation. If the primary constraint on investment was a lack of capital, then the insurance product, which offered no up-front payouts, would not have affected their ability to purchase materials. Many farmers appeared to recognize the value of the insurance product, with a significant proportion choosing to purchase insurance in years two and three. Take-up of the insurance product did not change when a token price of GHC 1 per acre was charged, and even at the actuarially fair price of almost GHC 10 per acre, 40-50 percent of farmers purchased insurance.

Impacts of Weather Insurance: Farmers with weather insurance invested more in agricultural inputs, particularly in chemicals, land preparation, and hired labor. Total cultivation expenditures were more than GHC 250 (US$188) higher for farmers with insurance, representing a 33 percent increase relative to the comparison group. These impacts were even larger among farmers who received both insurance and a capital grant. Despite the increases in production, it is not clear that investments were actually profitable for farmers: the additional expenditures may have increased by more than the value of the additional output, depending on how household labor is valued.

Trustworthiness of Insurance: Results suggest that how much farmers trust the insurance scheme has a large impact on their take-up and response to rainfall insurance. Take-up of insurance was considerably higher among farmers who also received a capital grant, but it was not higher among households who were wealthier. This suggests that farmers might not have been entirely confident that the promised insurance payouts would be made when trigger events occurred, and so they were more willing to take the risk of purchasing when they had been given extra cash. Similarly, individuals who were familiar with others who had received insurance payouts in previous years were significantly more likely to take-up insurance themselves.


Read about the new agricultural insurance product launch as a result of this study here, and about its' 2012 payout to farmers here.

Click here for a Q&A with researcher Chris Udry

The Impact of Health Insurance Education on Enrollment in Ghana’s National Health Insurance Scheme

Government-subsidized health care is seen as a useful tool in tackling the health challenges in sub-Saharan Africa, but for it to work, people have to enroll in the program. Ghana offers universal health care, but only about a third of the population is enrolled. Some evidence suggested education about the insurance program would boost enrollment. However, a randomized evaluation in northern Ghana determined that education was not the barrier.

Policy Issue
Health outcomes in sub-Saharan Africa are on average very poor. While the region has 11 percent of the world’s population, it accounts for half of the deaths of children under five, has the highest maternal mortality rate and is disproportionately impacted by HIV/AIDS, tuberculosis, and malaria.[1]  Many people, especially in rural areas, lack access to basic health care services. To help tackle the problem, some governments are providing low-cost public insurance options. However, getting the population enrolled in such programs has been a challenge in some countries. One theory was that low enrollment was a result of lack of knowledge and understanding of health insurance, and that health insurance education would lead to higher enrollment rates.
Context of the Evaluation
Although Ghana's National Health Insurance Scheme has offered low-cost insurance since 2003, a large share of the population remains uncovered. As of 2010, the National Health Insurance Authority estimated that only 34 percent of the population was actively enrolled in health insurance. Coverage rates are especially low in rural areas, including Ghana's Northern Region.
Preliminary qualitative research from international development organization Freedom From Hunger suggested that one reason for low enrollment was lack of knowledge and understanding of health insurance. Freedom From Hunger and IPA partnered to evaluate the impact of an education program developed by Freedom From Hunger on enrollment rates. Freedom From Hunger and IPA then partnered with a local microfinance institution Sinapi Aba Trust to administer the health insurance education program to Sinapi Aba Trust’s clients in both urban and rural areas in the Northern Region, Ghana, specifically in Bole, Salaga, Tamale, and Walewale.
Details of the Intervention
To understand if health insurance education leads to higher enrollment rates, researchers carried out a randomized evaluation with survey data from 1,500 Sinapi Aba Trust microfinance group clients. Credit officers with Sinapi Aba Trust administered the education program to microfinance groups after being trained by Freedom From Hunger.
Three hundred microfinance groups were randomly selected from among Sinapi Aba Trust's client groups. The groups were stratified by branch, depending on whether the group was urban or rural, and whether initial insurance enrollment for the group was estimated to be high or low. Of those 300 groups, 120 were randomly assigned to the comparison group, while 45 were assigned to each of four treatment groups . All of the treatment groups received education covering planning for health expenses, the definition of health insurance and its benefits, and how to sign up for Ghana's National Health Insurance Scheme.
The four treatment groups were as follows:
Short session education: These credit groups received education through a series of six 30-minute sessions over 12 weeks.
Short session education and reminder session: These credit groups were also given education through a series of six 30-minute sessions over 12 weeks, but with a session one year later that reviewed the material and reminded clients that to continue to have access to health insurance, they needed to enroll each year.
Consolidated session education: These credit groups covered the same material as the “short session” groups but in one 2-hour session.
Consolidated session education and reminder session:These credit groups covered the same material as the “short session” groups but in one 2-hour session, and with a reminder session one year later.
A fifth, comparison group did not receive any education program.
IPA conducted baseline, midline, and endline surveys with 1,500 respondents.  Within each client group, five individuals were randomly selected to be included in the study data. Sinapi Aba Trust credit officers administered post-education knowledge tests with a small subset of the sample. IPA also conducted a qualitative endline survey with a small a subset of the sample.
Results and Policy Lessons
Results indicated that individuals who received health insurance education were no more likely to enroll in health insurance than individuals in the control group.[2]
While education may have had some impact on knowledge of insurance, the effect was short-lived. Notably, attitudes towards insurance were universally favorable, and knowledge of insurance generally high, regardless of treatment status. This suggests that knowledge was not a major barrier to health insurance enrollment in Ghana. Follow-up interviews suggest that the convenience of registration, clients following through on stated intent to enroll, and the timing of making the premium payments are more common challenges for enrollment. In environments where knowledge and enrollment are low, educational programs may, therefore, have more impact.
Enrollment increased for all of the studied groups, including the comparison group that received no treatment, at a higher rate than the general population. It is possible that the repeated surveys, along with the treatment activities, might have served as “touch points” that prompted clients to take action to register or enroll in insurance.
In sum, this study joins a growing body of evidence finding that in many contexts, the impact of education programs on health insurance enrollment is limited, especially where a program is established and generally well-known. This research suggests that efforts to promote enrollment should focus on other barriers to enrollment, such as convenience, timing of costs, and following through with intent to enroll. 
[1]International Finance Corporation, “Health and Education in Africa.”
[2]Schultz, Elizabeth, Metcalfe, Marcia, and Gray, Bobbi. “The Impact of Health Insurance Education on Enrollment of Microfinance Institution Clients in the Ghana National Health Insurance Scheme, Northern Ghana.” Microinsurance Innovation Facility, ILO. No. 33, May 2013. 


Raymond Guiteras

Hidden Information and Market Failures for Crop Insurance in the Philippines

Farmers across the developing world face risk from hazards such as weather, pests, and crop disease, but largely lack insurance to manage these risks. One reason for this lack of viable insurance products may be that farmers know their plots and risks better than insurers, and react accordingly. In the Philippines, researchers offered insurance on randomly assigned plots to farmers, and found that farmers preferred to insure the plots that faced more risk. Farmers also invested less in fertilizer for insured plots, and those plots suffered from more preventable (pests and crop disease) than natural (flood and typhoon) damage. The findings suggest that information that is unavailable (at least in part) to insurance providers – the susceptibility of agricultural plots to damage and farmers’ effort to prevent damages – may be a substantial barrier to the functioning of crop insurance markets. 
Policy Issue
Farming households in developing countries face enormous risks from natural hazards such as pests, droughts, and floods. Not only are these constant threats to farmer livelihoods, but they can limit farmers’ access to credit, and lower their investment into planting. Despite the prevalence of these risks, insurance markets have largely failed to emerge, potentially because of information problems in the markets. 
This study examined two possible causes for this failure, associated with information asymmetries, or hidden information, when farmers know more about their plots and investments than insurers. The first, adverse selection, can occur when farmers choose to buy insurance on plots that are most likely to suffer losses (e.g., low-lying, flood-prone plots), but the associated risk characteristics of these plots may be difficult for the insurance company to identify. The second, moral hazard, is a result of insured farmers applying less effort to taking care of their farm when aware that it is insured against certain risks. 
This study was designed to test for these possibilities by using randomization to offer partial insurance to groups of farmers, first eliciting their preferences for which plots to insure, then measuring if having insurance changed the level of investment into different plots. Understanding how these asymmetries affect farmer behavior may be a crucial part of developing functioning insurance markets for farmers in the developing world.
Context of the Evaluation
Rural poverty accounts for 80 percent of the Philippines’ overall poverty rate, and agricultural production remains a major source of livelihood for the rural poor. Recognizing vulnerability to risk as a major constraint to agricultural productivity and improved welfare, the Philippine government created the Philippine Crop Insurance Corporation (PCIC) in 1989 to provide a “multi-peril” crop insurance product for rice and corn farmers, designed to help ameliorate the consequences of the many agricultural risks posed by typhoons, floods, droughts, and various pests and crop diseases. In a country that is affected by about 19 typhoons in a typical year, the need for such insurance is especially pertinent. However, take-up remains low, and no private market for crop insurance has developed. 
The study took place in the Bicol region of the Philippines, situated among a “typhoon belt” where risks to agricultural production are particularly high. The research focused exclusively on rice cultivation, which is the major agricultural activity of the region. 
Details of the Intervention
Over three consecutive farming seasons (two dry seasons and one wet season), the research team invited farmers tilling at least two irrigated rice plots to participate in the study. Participants could then enter a lottery where there was about a 70 percent chance that at least one of their plots would receive free crop insurance for that season. To see if farmers preferred to have certain plots insured over others, before the randomization, the farmers were asked to rank their plots in order of priority to receive insurance. Each farmer’s first-choice plot was allowed a slightly higher chance of receiving free insurance to motivate them to rank plots in accordance with their actual preferences. Farmers were then entered into a lottery and randomly allocated to one of three groups:
Group A (66.5%; Full Randomization): Received insurance on a random half of their plots.
Group B (3.5%; Choice): Received insurance on a first-choice plot and a random half of remaining plots.
Group C (30%; Comparison group): Received no insurance. 
The product paid out per hectare of insured land in proportion to the share of harvest lost to specific causes. As most farmers had limited or no experience with crop insurance, a member of the research team explained the product and claims process in person while providing informational materials, including an explanatory comic strip. The research team also followed up with insured participants through in-house visits and text message reminders throughout each season. 
Independent surveyors conducted three surveys throughout each farming season: a baseline before the randomization, a follow-up survey after planting, and an endline survey after harvest. 
Damages from preventable causes (i.e. pests and crop diseases) were higher on randomly insured plots by about 25% when compared to non-insured plots. In contrast, there was no difference in typhoon and flood damage across insured and non-insured plots of the same farmer. This difference suggests that farmers may respond to risk-mitigating insurance cover by reducing effort to prevent damages (i.e. moral hazard). 
The findings also suggest that farmers used less fertilizer on insured plots. Taken together, these findings suggest innovations in monitoring that limit moral hazard while keeping transaction costs low may be necessary for insuring against preventable kinds of losses.
Moreover, farmers preferred insurance on plots that were low-lying and prone to floods, characteristics that are mostly unobserved by the insurance company. The plots selected by the farmers to be prioritized for insurance coverage had 20% higher damages from flooding than other plots in their portfolios, suggesting the presence of adverse selection as farmers preferred to insure their more vulnerable plots. This finding suggests that insurance companies may need better assessment tools to help them identify risk characteristics (e.g. more precise altitudinal data to assess flood risk) and vary premiums based on this information. 
The identification of both moral hazard and adverse selection at work help explain why insurance markets have failed to develop and point the way to creating more viable products for farmers in the developing world.
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