Insurable Interest Regulatory Exclusion
RCTClinical Trial
Insurance regulatory frameworks mandate that microinsurance products require proof of land ownership (insurable interest), restricting sales exclusively to landowning farmers. This regulatory restriction prevents landless wage laborers from purchasing index insurance to hedge against weather-induced local wage collapses.
Picture this
Think of a rule that says only factory owners can buy disaster insurance, while the workers who lose their jobs when the factory shuts down are banned from buying protection. When the government lets farm owners buy weather protection, the farmers take bigger production risks that make worker wages swing wildly across weather states. Banning workers from buying protection leaves the poorest segment of society worse off than if no insurance market existed at all.
What the evidence says
Restricting rainfall index insurance to 25.6% of landowning cultivators while excluding landless laborers reduces landless daily wages by 0.63 log points at the 30th percentile of rainfall and by 0.23 log points at median rainfall relative to a no-insurance baseline.
- Who was studied
- N = 4,706 landless agricultural wage workers aged 20+ across 42 rural Indian villages.
- How
- Policy counterfactual simulations using structural general-equilibrium wage parameters estimated from a two-stage clustered RCT.
What to do
Amend microinsurance regulations to abolish the land-ownership insurable interest requirement, allowing wage laborers to purchase weather index contracts.
From the source
"Selling insurance only to land-owning cultivators and precluding the landless from the insurance market (which is the current regulatory practice in India and other developing countries), makes wage laborers worse off relative to a situation where insurance does not exist at all."
300_400 Wages General Equilibrium NBER Jan2014.pdf