The Demand for Microinsurance: A Literature Review

Microinsurance has recently received much attention as a promising tool to protect poor individuals from important shocks. Yet, voluntary demand from people has been low, shedding doubt on the viability of microinsurance as a useful risk-management tool. To better understand this puzzle, this paper reviews both the theoretical and empirical literature on the demand for insurance. While people's lack of understanding of insurance does seem to limit the demand for it, several more fundamental factors, such as price, quality, limited trust in the insurer, and liquidity constraints also seem to have an important role in explaining the puzzle.