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Responsible Bundling of Microfinance ServicesA Mixed Method Evaluation of the Impact of

Timing, Pressure, and Information

Emily Zimmerman, Jonathan Bauchet, Barbara Magnoni, and Vance Larsen

WORKING PAPERMARCH 2016

RESPONSIBLE BUNDLING OF MICROFINANCE SERVICES

Table of Contents Executive Summary

1. Introduction

2. A Review of Literature Relevant to Bundling Crop Insurance

2.1. Potential value but low demand for agricultural insurance 2.2. Drivers of demand for insurance 2.3.Costsandbenefitsofbundlingoffinancialproducts 2.4.Linkamonginformation,education,andpurchasedecisions 2.5.Informationoverload,stressandthepurchasedecision 2.6. Understanding and recalling information

3. Selecting a Financial Service Partner in Rural Colombia

3.1. Crezcamos 3.2.Cropinsurance 3.3.Salesprotocolforcropinsurance 3.3.1.Avideotooltostandardizesalesandsupportloanofficers 3.3.2.Feedbackonthesalesprotocolandtools

4. Study Methodology

4.1.Sampleselection 4.2. The sales intervention 4.3. Sources of quantitative data 4.4.Descriptivestatisticsofthequantitativesample 4.5. Qualitative data

5. Findings

5.1.Take-upratewascomparativelyhigh,butaveragecoveragewaslow 5.2.Pricewashighlyrelevanttothepurchasedecision 5.3.Perceptionsoftheproduct’squalityandrelevancevariedbutwere generallypositive 5.4. Product understanding was relatively high, but recall was low 5.5.Directpressuretopurchasetheproductwasalmostcompletelyabsent 5.6.Someclientsmayfeelindirectpressuretopurchaseinsurance,linkedtolow levelsofempowerment 5.7.Theunbundlinginterventiondidnotinfluenceclients

6. Conclusion

6.1.Distractionandcognitiveloaddidnotaffecttake-up,understanding,orrecall 6.2.Driversofclientpurchases 6.3.Lowrecallsuggestsaneedforongoingsupport 6.4.Implicationsforfinancialserviceprovidersbundlingotherproductsandservices

References

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Financial institutions serving the poor can offer a range of savings, insurance, and even nonfinancialproductsinadditiontotheircorecreditproducts.Bundlingtheseproductsintoonepackagedsalecanbeacost-effectivedistributionstrategyandameanstodifferentiatetheprovider’sofferingbyitsaddedvalueto clients. However, it may also raise the risk of confusing clients who receive too much information at once anddonotfullyunderstandthesecondaryproductstheyareofferedortheriskthatclientsfeelpressure(whetherdirectorindirect)topurchasethoseancillaryproducts.

WepartneredwithCrezcamos,amicrofinanceinstitutioninruralColombia,toexploretheinfluenceofajointsalesstrategyontheuptake,understanding,andrecallofcropinsuranceproducts.Ourmixed-methodsresearchdesigncombinedqualitativeinterviewswithendclients,loanofficers,andotherCrezcamosstaffwitharandomizedinterventiontestingtheimpactof“unbundling,”orseparatingtheinsuranceofferfromtheloanapplicationprocessontake-upandunderstandingoftheinsurance.WeworkedwithCrezcamostodevelopastandardizedapproachtoofferingtheinsuranceproduct,whichreliedonanexplanatoryvideoandothertoolsandemphasizedcrucialinformationabouttheproductwhileunderscoringthevoluntarynatureoftheclient’sdecision.

FindingsOverall take-upof thecrop insurancewas 23percent for our full sampleover the studyperiod,whichcomparesfavorablytotake-upofsimilarproductsinothercountries.However,clientspurchasedrelativelysmallamountsofcoveragewhencomparedtothemaximumamountstheycouldhavepurchased.Price wasanextremely relevantconsideration inpurchasedecisions,andourfindings suggestahighdegreeofpricesensitivity,whichmayhavebeenexacerbatedbythefactthatpremiums(whilehighlysubsidizedandquitelowforthecoverageoffered)weremuchhigherthanthosechargedforinsuranceproductswithwhichclientsweremorefamiliar.Thenoveltyoftheinsuranceproductseemsalsotohavecontributedtoclients’decisionstopurchaselowamountsofcoverage.Perceptionsoftheproduct and coverage were generallypositive,evenamongnonpurchasers,althoughasmallminorityofclientsdidnotfindtheproductuseful.Relevanceofthecoverageseemstohavebeenthesinglemostimportantdeterminantofpurchasedecisions.

Although most clients understood atthetimeoftheoffertheproductfeaturestheyneededtomakeaninformedpurchasedecision,latersurveydatareveallow recallofproductinformationthatissuggestiveofapossiblegapinclients’abilitytomaintainandusetheirpolicieseffectivelywithoutadditionalsupportfromCrezcamos.

Direct pressurefromloanofficersorCrezcamostopurchasetheproductwasalmostcompletelyabsent.Mostclientsdidnotperceiveindirectpressuretopurchasetheinsurance,althoughwefoundsomesuggestionthatsomeborrowerswhowerelessempowered,morevulnerable,ormoreworriedabouttheloanapprovalmayhavefeltindirectpressure.

Contrarytoourhypothesis,offeringinsuranceseparatelyfromtheloanapplicationprocessdidnotincreasetake-upoftheproduct,nordiditimproveclients’understandingorrecallofpurchasedecisionsorproductdetails.Distractionwasnotarelevant influenceforCrezcamosclientsduringeitherthe jointorseparateinsurance offer.

Executive Summary

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Manyfinancialinstitutionsservingthepoorhave,inrecentyears,expandedthebreadthofservicestheyofferbeyondtheircorecreditofferingstoincludeawiderrangeofsavings,insurance,andotherproducts.Bundlingproducts(deliveringmultipleproductsatonce)canbeacost-effectivedistributionstrategyaswellasawaytodifferentiatetheprovider’soffering.1However,itmustbedonecarefully,asithaspotentialto raiseanumberofchallenges. If toomuch informationabout toomanydifferentproducts isgivenatonce, some consumers may not understand or use all of that information to make decisions that best addresstheirfinancialneeds.Clientsmaybedeniedtheopportunitytomakeatruly freechoiceaboutwhichproductstobuy.Thisistrueofmandatorybundledproducts,butcanalsooccurwhentheadditionalbundledproductsareostensiblyvoluntary,ifclientsfeeldirectorindirectpressure.Inparticular,someclientsmayworrythatturningdowntheofferofabundledproductmayreducetheirchanceofreceivingaloan.Othersmaypurchaseaproductdespite(orperhapsbecauseof)theirfailuretofullyunderstandit.Whentheloanapplicationinvolvesextensivepaperworkandquestions,unfamiliarprocesses,orstressabouttheloanoutcome,distractionandinformationoverloadmaycontributetopoorunderstandinganddecision-making.Whenthesecondarybundledproductiscomplexorunfamiliar,theseproblemsmaycompound.

Bundlinghasimplicationsforconsumerprotection,totheextentthatclientsarenotaffordedtheopportunitytomaketrulyfreeandadequatelyinformedchoices.Iftheydopurchaseaproduct,poorunderstandingcanhinderaclient’sabilitytousetheproducteffectively.Fromacommercialperspective,sellingproductsthatclientsdonotfullyunderstand,value,orwishtopurchasecannegativelyimpactclientloyalty,especiallyincompetitivecreditmarket.Conversely,whenproductsarebundled responsibly, theymay serveasapowerfuldifferentiatorandbuildclientloyalty.Theycanofferclientstoolstoaddressabroaderarrayoftheirneedsinaconvenient“onestop”manner.

1. Introduction

1. Weusetheterm“bundling”to refer tothe jointofferofmultiplefinancialproductsatonce,whethertheclientis required topurchaseallbundledproducts togetherornot.Both scenarios raise similaropportunitiesand theconcerns.

ImplicationsOur findings suggest that the opportunities associated with bundling crop insurance or other financialserviceswith loanscanfaroutweighthedrawbacks.Fromthesupplyside,bundlingreducesthecostofdelivery,particularlyinruralareaswhereloanofficerstravellongdistancestovisitclients.Fromthedemandside,ourfindingssuggestthatabundledofferdoesnotnegativelyimpactclients’purchasedecisionsorunderstanding.Infact,wefindsomeindicationthatsellinginsuranceatatimewhenfarmersarethinkingabout their investments in their crops (during the loan application) may help increase the perceivedrelevanceoftheproductandleadtogreaterunderstandingandrecall.

Ourresearchsuggeststhatabundledcropinsuranceproductforlow-incomefarmerscanhaverelativelyhighoveralltake-up(comparedtosimilarproducts)ifitisvoluntary,affordable,relevanttoclients’needs,and well-understood at the time of the offer. However, even this comparatively high take-up left themajorityofCrezcamosclientswithnocoverageatall,andlowpurchaseratessuggestthatsomeinsurancepurchasersmayremaininsufficientlyprotected.

The lowrecallofproductdetailssuggeststhatongoingpost-salessupport isneededandthatremindersofcoveragemaybeuseful,thoughtheyshouldbecarefullydesignedtobeusefulandappreciated.ThecaseofCrezcamossuggeststhattheresponsibilitytoprotectconsumersinlow-incomesettingsmightfalldisproportionallyonthedistributionchannel.

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Theseissuesareparticularlystrikingintheruralcontext,althoughtheyarecertainlynotuniquetoruralareas.Educationlevelsarelowerandexperiencewithfinancialservicesisoftenmorelimitedthaninmanyurbansettings, leavingclientsmorevulnerabletomisunderstandingormanipulation.However,thehighcostofdistributingfinancialproductsintheseareasmakesthepotentialgains(tobothclientsandproviders)frombundlingproductsevengreater.

Ourstudysoughttogaininsightintotheexperienceofruralclientswhentheyareofferedbundledfinancialservices, includinga relativelycomplexagricultural insuranceproduct.Weaimed tobetter understandhowtooffer suchproducts responsibly,generating take-upaswellas supportingclients’understandingandmemoryofproductdetails.Wehypothesizethatbundlingtheinsuranceofferwiththeloanapplicationmayinfluenceaclient’sabilityandinterestinretaininginformationaboutadditionalproductsduringtheloanapplicationandhisorherperceptionofanydirector indirectpressure topurchasethe insurance.Specifically,ourresearchseekstoanswerthefollowing:

• Does unbundling or separating themarketing of an insurance product from the loan applicationimpactclients’understandinganduptakeofinsurance?

• How does the cost-effective process of bundling products and delivering information about newproductsinconjunctionwiththeloanapplicationinfluenceclients’abilitytoprocessandretainthisinformation,aswellastheirpurchasedecisions?

• Towhatextentdoesastandardizedmarketingtoolsupport responsiblesales,clientunderstanding,andretentionofpertinentinformation?

Toaddressthesequestions,weconductedamixedmethodsevaluationofthedeliveryofacropinsuranceproductbyamicrofinanceinstitutioninruralColombia.Thestudycombinesarandomizedcontroltrialwithextensivequalitativeresearch,exploringthepurchasedecisions,understanding,andperceptionsofloanapplicantswhohavebeenofferedtheproductandcollectingextensivequalitativefeedbackfromthemicrofinancestaffwhoofferit.Theremainderofthispaperisorganizedasfollows:Section2summarizestherelevantliterature;Section3offersanoverviewofthecontext,theinsuranceproduct,andhowitissold;Section4describesourstudymethodology;Section5describesourfindings;andSection6concludes.

2. A Review of Literature Relevant to Bundling Crop Insurance

2.1. Potential value but low demand for agricultural insuranceFarmers around the world face enormous and varied risks, and there is strong evidence that this uninsured risk has immense welfare effects and also constrains the investment that farmers make in their farms, suggesting greatpotentialvalueforagricultural insuranceproducts(seeHill,Zimmerman,andMagnoni[2014]forareviewoftheliterature).However,demandfortheseproductsremainsalmostuniversallylow.HillandRobles(2010)foundthatonaverageabout10percentofpotentialclientsofindexinsuranceproductsbuythem.Evenwhereextensivesubsidiesandothercostlyeffortsaremadetoincreasedemand,take-uptypicallyremainswellbelow50percent.Coleetal.(2013)studiedtake-upofaweatherindexinsuranceproductinIndia,andfoundthatevenwithhighsubsidiesandextensiveeducationalandmarketinginterventions,take-upwasaround28percent.2Householdsthatwerenotexposedtotheseinterventionsdesignedtoincreasedemandhadtake-upnearzero.KalavakondaandMahul(2005)foundthattake-upofthegovernment-

2. The authors find evidence that lack of trust, price, liquidity constraints, and limited salience are all significantconstraints to demand.


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3. Theauthorssuggestthatlowdemandisduetolimitationsinproductdesignandliquidityconstraints.

2.3. Costs and benefits of bundling financial productsWuebker, Baumgarten, Schmidt-Gallas, and Koderisch (2008) noted that effective bundling can offerconvenient, “one-stop-shop” options at a reduced cost due to savings in delivery. Yet bundling alonemay not solve difficulties in selling products with low demand. The authors also cautioned that whileeffectivebundlingstrategiesinfinancialservicescanleadtoincreasedsalesinbothleadandadditionalproducts, includingtoomany“fillerproducts”inabundlewitha“lead”productmightbackfire,causingclients toabandon thepackageandmove toa “lead-only” solution. In thecaseofmicrofinance, thiswouldrepresentaloss,asaclient’sunbundledalternativewouldlikelybetakingaloanfromacompetinginstitutionoravoidingborrowingaltogether.Banerjee,Duflo,andHornbeck(2014)foundthatalargefractionofborrowers (16percentagepoints)werewilling togiveupamicrofinance loantoavoidpurchasingamandatorybundledhealthinsuranceproduct,andthemajorityofthoseclientslostaccesstomicrofinancealtogether.Similarly,GinéandYang(2009)foundinastudyofamandatorybundledindex-basedweatherinsurancepolicy,pricedatactuariallyfairrates,thattake-upoftheloanwaslowerby13percentagepointsamongfarmersofferedinsurancewiththe loan.The insuranceproductforgavethe loan intheeventofpoorrainfall,andtheauthorssuggestthatfarmersarealreadyimplicitlyinsuredduetothelimitedliabilityinherentintheloancontract,andasaresultdidnotseevalueintheinsuranceproduct.Bycontrast,abank

sponsoredagricultural (areayield) insurance in Indiawasonly11.6percentamong smallandmarginalfarmers,whowereeligiblefora40percentpremiumsubsidy.3

2.2. Drivers of demand for insuranceThedriversofdemandforagriculturalandother insuranceamonglow-incomehouseholdsarecomplexandvaried.McCord,Magnoni,andZimmerman(2012)andEling,Pradhan,andSchmit(2014)reviewedtheliterature on demand factors. Some of the most relevant determinants of demand relate to characteristics oftheproduct,cost,andinformation,specificallythefollowing:

• Salience of the covered risk• Appropriateproductfeatures• Adequate coverage• Price• Liquidity constraints• Experiencewithinsurance• Financial literacy • Understandingoftheproductoffered• Decisionsandrecommendationsofpeers• Trust in the insurer and/or distributor

DalalandMorduch(2010)discussedthepsychologicalfactorsthatcanlimitdemandformicroinsurance,drawing from behavioral economics to suggest (among others) the following strategies to increase take-up:

• Avoid overwhelming customers with too many choices.• Appealtoindividuals’fearofloss,ratherthanadvertisingthebenefitsofinsurance.• Maketheriskandtheinsuranceproductsalient.• Underminepotentialcustomers’overconfidenceregardingthecoveredevents.• Eliminateobstaclestopurchase.


inGhanaexperiencedincreasesindemandthroughabundledsavings-linkedinsuranceproduct.ClientswhomaintainedasavingsbalanceofUS$60wereeligibleforfreelifeinsurancecoverage.Duringthefivemonthsaftertheinsuranceproductwaslaunched,alldepositsincreasedby19percent,anddepositsbyclientsunderUS$60increasedby207percent,asclientssavedmoretoaccesstheinsurance(Matul,Dalal,DeBock,andGelade2013).

Bundlingfinancialserviceshasimportantconsumerprotectionimplicationsaswell.Clientsmaybepressuredinto buying something that they do not need or want, or may not be aware of the details of their coverage. These concerns are particularly relevant when the bundled product is mandatory (e.g., the credit-lifeinsurancethataccompaniesmanymicrofinanceloans),butcanalsoariseinthecaseofvoluntaryproducts.Offering low-valueproducts,mis-selling, failing toprovide relevant information, or failing toprovide thesupportthatclientsneedtouseproductseffectivelyandmakeclaimsareconsumerprotectionproblemsthat commonly arise in microinsurance sales (Zimmerman, Magnoni, and Camargo [2014] created aframeworkoffourmaincategoriesofconsumerprotection inmicroinsurance, includingtheseandotherissues).Whentheindividualssellinginsuranceare,likemanymicrofinanceloanofficers,notwelltrainedinallaspectsoftheproductstheysell,thepotentialformisinformationormis-sellingmaybegreater.

Despitethepotentialdrawbackstobundlingfinancialproducts, thisstrategypresentsclearadvantagesin terms of reducingdelivery costs and increasing outreach.Cull, Demirguc-Kunt, andMordoch (2009)documentedthehighoperatingcostsbornebymicrofinancelenders,drivenbythedifficultyofreachingand servingmicrofinanceborrowersandby theirlowaverage loan sizes. Amonga sampleof 346lenders, the study foundmedianoperatingcostsof26percentand17percentofthecostofloansfor nongovernmental organizations and nonbank financial institutions, respectively. These highoperatingcostsmaybeseenasa justificationforthe cost-effective strategy of delivering multipleproductsatonce,particularlyinruralareaswherelargedistancesanddifficult roadaccessadd tothe cost of delivering services. As such, strategies to bundle financial services must be consideredin efforts to reach excluded populations withfinancial services. However, the perspective andunderstanding of the client must be carefully considered to ensure that they are offered appropriate services that they understand andvalue.

2.4. Link among information, education, and purchase decisionsOfparticularrelevancefromtheconsumerperspectiveistheirunderstandingoftheproductsofferedandhowthatunderstandinginfluencespurchasedecisions.Lackofsufficientunderstandingissometimescitedbypotentialclientsasareasonfornotbuyinginsurance(Ginéetal.2008;Takahashi, Ikegami,Sheahan,andBarrett2016).Understandingofaproductmayalsoleadtohigherrenewalrates,asithelpstoavoiddisappointmentwiththeproduct(PlatteauandOntiveros2013).

Financial education has been testedas an intervention thatmight significantly improve understandingof insurance.However, the impactof financialeducationand financial literacyon insurancepurchasedecisions hasalsobeen shown tobemixed. Several studies conclude thatprovidingmore informationaboutmicroinsuranceproducts does not directly increase take-up.Cole et al. (2013) found thatwhilegeneralfinancial literacy ispositivelycorrelatedwithdemandforarainfall insuranceproduct in India,a

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In our setting, Crezcamos loan officers travel hours from their branch office to meet with clients on their farms.

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short insurance educationmodule had no significant effect on demand. The authors suggest that thisinefficacywasduetoitsshortlength.Takahashi,Ikegami,Sheahan,andBarrett(2016)foundthatlearningkits(includingcomics,skittapes,andothertools)contributedtobetterknowledgeoflivestockinsurance,butthisdidnotsignificantlyincreaseuptake.Similarly,Schultz,Metcalfe,andGray(2013)foundthatfinancialliteracyprogramsandreminderswereeffectiveatraisingknowledgeofhealthinsurance,butnottake-up.Theauthorspositedthatlackofunderstandingwasnotabarriertoenrollment,becausebaselineratesofinsuranceunderstandingwerealreadyhigh.InastudyofafinancialeducationradioprograminColombia,Sanchez,Rodriquez,andZamora(2014)foundasignificantimpactonlisteners’knowledgeofriskstheyareexposedtoandthetypesof insuranceavailable(theprimaryfocusofmostprogramsessions).Listeners’perceivedcapacity regarding theirownknowledgeof riskand insurancealso increased.However, thisknowledgedidnottranslateintochangesinattitudesorbehaviorstowardinsurance:noimpactwasfoundonknowledgeofinsuranceconcepts,attitudestowardinsurance,orinsurancepurchase.

However, some studies show that financialeducationcanbeeffective in stimulatingdemand.Cai,deJanvry,andSadoulet(2013)foundthatparticipationinafinancialeducationsession(ratherthanreceivingabasicexplanationoftheproduct)increasedtake-upofaweatherinsuranceproduct.Gaurav,Cole,andTabacman(2011)foundthatashortinsuranceeducationmoduledidnotincreasetake-up,butatwo-dayeducationalprogram, involvinggamesthatsimulate rainfall insurance, increased insurancedemandbyfivepercentagepoints.Themixedresultspointtothepossibilitythatthecontent,timing,anddeliveryoffinancialeducationinamarketwherevaluablemicroinsuranceproductsareaccessible,mayplayaroleinitseffectivenessininfluencingclientpurchasingdecisions.

2.5. Information overload, stress, and the purchase decisionMoreinformationcanhelpindividualstomakebetterpurchasedecisions,butonlyuptoacertainpoint.Whenindividualsreceivetoomuchinformation,theirabilitytoprocessandusetheinformationdeclines,theycanbecomeoverwhelmedandconfused,andthequalityoftheirdecisionssuffers.EpplerandMengis(2004) reviewed the literatureon informationoverload.Diversity,novelty,andcomplexityof informationcan all contribute to information overload. Its effects include stress and cognitive strain, loss of control over information, lower decision quality, and lower satisfaction with the decision made. These factors may lead someconsumers to (rationally) avoidmaking financial decisions. Reis (2004)modeledconsumers’expectations formation and predicts that, due to the cost of acquiring, absorbing, and processinginformation,consumersrationallychoosetoonlysporadicallyrecomputetheirconsumptionplans.

Theeffectsof inattentionand informationoverloadmaybeparticularly large in thecontextoffinancialdecisionsbylow-incomepeople.MullainathanandShafir(2014)discussedthespecificcontextofpovertyandhowscarcityof resourcescanreduceaperson’smentalbandwidthandforceher to focusonthepresent,leavinglittlespaceforlong-termplanninganddecision-making.Karlan,McConnell,Mullainathan,andZinman(2010)foundthatlimitedattentionleadstolowhouseholdsavingslevels,andthatremindersincreased savingsandweremosteffectivewhen theymentionedan individual’s specific savingsgoal.BanerjeeandMullainathan(2008)developedatheoreticalmodelpositingthatthenonpoor,byvirtueofowning distraction-saving goods and services at home, are able to focus more on their work (i.e., the effects ofdistractionaregreaterforthepoor).

Psychologicalstressors,suchasfearoranxiety,canleadconsumerstoprocessandassimilateinformationpoorly, to fail to fullyconsideralternatives,and topostponeoravoidmakingpurchasedecisionsatall.Stressmayalsodecreaseconsumers’willingnesstopaybyshiftingtheirattentionawayfrommoreabstractfeaturesof theproduct (MaierandWilken2014).Althoughwearenotawareofany literatureon stressassociatedspecificallywiththemicrofinanceloanapplicationprocess,severalstudieshavedemonstratedthathavingamicrofinanceloancanleadtohigherlevelsofgeneralstressandanxiety(e.g.,Fernaldetal.2008;KarlanandZinman2011).


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2.6. Understanding and recalling informationFromaconsumerprotectionperspective, informationabouta financialproduct is relevantbothat thetimeconsumersmakeapurchasedecisionandlater,astheymaintainandusetheproduct.Inthecontextofinsurance,aconsumershouldatthetimeoftheofferunderstandthebasicfeaturesoftheproducttomakean informedpurchasedecision; these varybyproductbutgenerally include theprice, coveredevents,term,amountofcoverage,propertyorindividualscovered,andanymajorlimitationsorexclusions(Zimmerman,Magnoni,andCamargo2014).ThisisconsistentwiththeSmartCampaign’sdraftstandardsregarding the informationabout insurance that shouldbe sharedwithmicrofinanceclientsat the timeofenrollment(SmartCampaign2015).After thepurchase,aclientmust remember(orbe remindedof)someminimumamountofinformationtomakeaclaimwhenacoveredeventstrikes(i.e.,existenceofthecoverage,coveredevents,andhowtoinitiateaclaim)(Zimmerman,Magnoni,andCamargo2014).

Itisreasonabletoexpectthatmuchoftheinformationconveyedtoaconsumeratthetimeaninsuranceproductisofferedmaynot(evenifitisinitiallywell-understood)beretainedovertime.Studiesinsuchdiversecontextsastelevisionadvertising(Singh,Mishra,Bendapudi,andLinville1994),pairsofwords(Runquist1983),andmedicaladvice(Kessels2003)havedemonstratedthatpeopleforgetawidelyvarying,butoftenlargeproportionofinformationinthedaysandweeksaftertheyreceiveit,evenafterdemonstratingthattheyinitiallyunderstoodtheinformation.Reviewingliteratureonconsumers’recallofpricespaidforconsumergoods,MonroeandLee(1999)foundthatinnearlyallstudies,lessthanhalfofconsumerscouldrecalltheexactpricepaidsoonaftertheirpurchase(recallrangedfrom8percentto61percentofconsumers).Wearenotawareofanystudiesofretentionofinformationaboutfinancialproducts.However,theverylimitedsuccessof financial literacyprograms inpromotingknowledgegains suggests that financial informationmaybeparticularlydifficulttoremember.Ameta-analysisofstudiesoffinancialeducationprogramsfoundthat the interventions explainedonly 0.44percent of the variance in financial knowledge,whilemeta-analysesinothertypesofeducationshoweffectsthatarefiveto13timeslarger(Fernandes,Lynch,andNetemeyer2014).

2.7. Implications for the researchTheliteratureshowsthatthereisgreatpotentialvaluetosmallholderfarmersinagriculturalinsurance,butquitelowdemandevenwherehighsubsidiesandextensiveeducationalandmarketinginterventionsareinplace.Demandforinsuranceisdrivenbyawidevarietyoffactors,includingfeaturesoftheproductandcoverage,pricing,financial literacy,understandingoftheproduct,experience,recommendations,trust,andpsychologicalfactors.Bundlinginsurancewithamicrofinanceloancanleadtosignificantefficienciesformicrofinancelenders,particularlygiventheirhighoperatingcosts.Thiscanleadtocostsavingsforclientsand/ormakeavailable to them low-marginproducts (suchassome insurance) thatwouldnotbecost-effectivetodistribute individually.However, it raisesotherconcerns: someconsumersmaybepressuredintobuying something theydonotwantor fullyunderstand,whileothersmayoptoutof the lead loanproducttoavoidanunwantedbundledproduct.Ourstudyhypothesizedthatproduct informationandunderstandingmaybeparticularly relevanttothepurchasedecision.Whileproductunderstandingandgeneralfinancialliteracyaresometimeslinkedtopurchasedecisions,theliteratureshowsmixedevidenceontheeffectoffinancialeducationoninsurancedemand(withmoreintensiveprogramsandthosethatrefertoaspecificproductmostlikelytoincreasedemand).Wealsohypothesizedthatstressorinformationoverloadmightinfluencepurchasedecisionsduringabundledoffer.Theliteratureshowsthatreceivingtoomuchinformationatonceorexperiencingfearoranxietyatthetimeofadecisioncanleadanindividualtomakepoorerdecisionsoravoiddecision-makingentirely,andtheseeffectsmaybeparticularly largeforlow-incomepeople.Theliteraturealsosuggeststhat,evenifanindividualcanunderstandandprocessinformationaboutafinancialproductinthemomentheorshereceivesit,laterrecallofthatinformationislikely to be low.

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3.1. CrezcamosTobetter understand someof the influencesandperceptionsbehindthepurchasedecisionofbundledproducts,specificallycropinsurancebundled with amicrofinance loan, we partnered with Crezcamos, amicrofinanceinstitutionbasedinBucaramanga,Colombia.Crezcamosservesover70,000clientswithindividualsmallbusinessandagriculturalloans.Sixty-twopercentof itsclients live inruralareas,and13percenthaveanagriculturalactivityfinancedbyCrezcamos(2014).Agriculturalloansareofferedforinvestmentorconsumption,withtermsbeginningatthreemonths,butmoretypicallywithtermsbetween12and24months.

The loan approval process includes a visit to the applicant’s farm,duringwhichtheloanofficercompletesanextensiveloanapplication(includinga risk assessment) andoffers additional insuranceproductsto the applicant. All Crezcamos borrowers purchase a compulsorycredit life insurancepolicy thatcovers their loanbalance. Inaddition,Crezcamosoffersanumberofvoluntaryinsuranceproductstoitsclients,includinglifeinsurance(withbenefitsgoingtoanamedbeneficiary,notCrezcamos), property insurance covering the home or business, andvehicleinsurance.Crezcamosrecentlybeganofferingacropinsuranceproduct.Thisproductisuniquelycomplexandisalsonewtobothclientsand most loan officers, making it well-suited to test the concepts ofinformationoverload,purchasedecisions,andretentionofinformationfromabundledcreditplusinsuranceoffer.

OurstudytookplaceinthedepartmentsofSantander,NorthSantander,andCesar,ageographicallydiverseandagriculturallyproductiveregion.Awide rangeofcropsaregrown in the region, includingpermanentcropssuchascoffee,cacao,citrus,andguanabana(soursop),aswellastransitorycropssuchaspotato,rice,andcorn.Climatechangehascreatedincreasinglyprevalentweatherriskintheregion,withpotentiallydevastating effects for the smallholder farmers that Crezcamos lends to (World Bank 2009). The region is also characterized by its highlycompetitive credit market; the small towns in which Crezcamosbranchesare locatedare typically home to 10 ormore lenders,withclientsfrequentlyborrowingfrommultiplelenders.

3.2. Crop insuranceIn 2014,Crezcamosbegan to roll outanewcrop insuranceproduct,which is underwritten by the insurer Mapfre and designed to beappropriateforthesmallfarmerswhocompriseCrezcamos’sclientbase.Theinsurancecoversnaturaldisasterriskforavarietyofcropsthatarecommon in theregion(thoughseveralcommoncropsareexcluded);all loanapplicantswho havean insurable cropare eligible to enroll.Nonborrowers, includingapplicantswhose loansaredenied, arealsoeligible. Clients may purchase coverage for multiple crops, althoughmosttypicallyinsureonlyoneprincipalcrop.

3. Selecting a Financial Service Partner in Rural Colombia

A Crezcamos borrower walks from the main road to his coffee farm. Rural Santander offers a variety of microclimates and weather risks that place farmers at risk of drought, floods, freezes, avalanches and strong winds.

Promotional materials for the insurance caution customers that “anything could happen to your crop.”


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Thepremiumiscalculatedbasedonthecropandtheinsuredamount;theColombiangovernmentsubsidizespremiumsby60–80percent.4Policyholdersarecoveredintheeventofdamagetotheircoveredcropfromanyofthefollowingevents:deficiencyofrain,excessofrain,freezing,flood,hail,wind,avalanche,andlandslide.Policyholders receiveabenefit in thecaseofdeathof theplants (forpermanentcrops, suchascoffee)orlossofexpectedyield(fortransitorycrops,suchaspotato).Thecoverageisnotintendedtorecoverthefullloss,buttocover“productioncosts”:thecostofbuyingnewplants(forpermanentcrops)orreplantinginthenextseason(fortransitorycrops).However,policyholdersmaychoosetheamounttoinsure(subjecttoamaximumamountcorrespondingtothecropandfieldsize),andmanychoosetoinsureasmalleramountthantheiractualproductioncosts.ForCrezcamosborrowerswhohaveanoutstandingloan,anyinsurancepaymentfirstcoversthebalanceoftheirloan,andtheremainderispaidtotheinsuredincash.Crezcamosloanofficersreceiveasmallcommissionbasedonthepremiumamountforsales.Box1summarizesthemainproducttermsfortwocommoncropsintheregion.

4. Totalpremiumsarebasedonarateof3–8percentoftheinsuredamount,plustax.Thegovernmentsubsidyratedependsonthecropcoveredandwhetherthefarmermeetstherequirementstoqualifyasa“smallproducer”(nearly all Crezcamos clients do).

Box 1. Terms of the crop insurance

TableB1-1summarizesthemaintermsofthecropinsuranceforpermanentandtransitorycrops.Exacttermsvarybythecrop,cropsize,andtheamounttheclientchoosestoinsure.Ingeneral,insurancefortransitorycropsismoreexpensiveinrelationtothebenefitamount,butalsomorelikelytopayabenefitasitcoverslesssevereevents.

Table B1-1. Summary of Main Terms of Crop Insurance

Permanent Crops | Coverage for Plants Transitory Crops | Coverage for Yield

365 days Term of coverage 130–300days(linkedtothelengthofthe growing season)

$2,500–6,275perhectare Maximum insured value (USD) $315–2,200perhectare

3%oftheinsuredvalueformostcrops(plustax) Total premium 4%–9%oftheinsuredvalue(plustax)

80%formostcrops Premium subsidy 60%formostcrops

90%ofinsuredvalue Benefit in case of a total loss 90%ofinsuredvalue

Thefollowingareexamplesofcoverageandpricefortwocommoncrops,foraone-hectarefarm:

Cocoa (Permanent Crop) Potato (Transitory Crop)

365 days Term of coverage 210days

$3,587 Maximum insured value (USD) $2,092

Total:$113Subsidy:$86

PaidbyClient:$27Premium (USD)

Total:$198Subsidy:$113PaidbyClient:$85

$3,228 Benefit in case of a total loss (USD) $1,883

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3.3. Sales protocol for crop insuranceIn collaboration with Crezcamos, our research teamdevelopedastandardizedsalesprotocol fortheinsurance,whichservedtwopurposes.First,theprotocolandassociatedtoolssupport loanofficersin sellinga complex newproduct both effectivelyand responsibly on a voluntary basis. Second,standardizationhelpedtoensureloanofficerstookaconsistentapproachtoeachsale,allowingustoisolate the effect of the timing intervention described inSection4.Thisprotocolconsistedofthefollowingfivesteps:

1. Introduce the insurance by sensitizing clients to therisk,withreferencetopastexperiencewithweather-relateddamagetothefarmer’sorhisneighbor’scropsandstating four introductory points about the product.5

2. Show a videothatexplainstheproductfeaturesand offers a brief testimonial from a claimant (see 3.3.1).

3. Calculate the exact premium and benefitamount for the client’s situation using aworksheet.Theobjectiveoftheworksheetwasto both streamline the calculations for the loan officerandtodemonstrate to theclientbothhowtheproductispricedandhowclaimsarecalculated.

3. Manage questions and concerns from the client.

4. Completeenrollment forms if the client chooses topurchasetheinsurance.

Loanofficersweretrainedontheproductdetailsandtheprotocolfortheoffer.Theyreceivedascripttofollowintheirexplanationoftheproduct,aswellasaguideofanswersto“frequentlyaskedquestions”from clients. While some loan officers failed tofollowthisprotocolexactly(inparticular,thosewhohadexperience selling thecrop insuranceprior tothe study), loan officers generally appreciated,remembered,andusedthetoolsandprotocol(seeSection 3.3.2).

5. The crop insurance (1) is offered by Crezcamos, (2)protects themajorityof the investment inacrop, (3)has low cost, and (4) is designed for small farmers.

Box 2. Content of the video

Crezcamos staff practice the standardized offer protocol.

Product is introduced with reference to the objective of protecting one’s investment.

Narrator lists the main covered events (including landslides), with accompanying visual depictions.

Basic terms of the insurance (including the premium, subsidy, and coverage amount) are explained.

A claimant describes how the insurance helped him when he lost his potato harvest.


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3.3.1. A video tool to standardize sales and support loan officers

A brief video on the crop insurance was developed through acollaboration among Crezcamos, Mapfre, and our researchteam.Thisvideowas installedon loanofficers’company-providedsmartphones. Itwasshowntoclientsaspartof the insuranceofferwiththeaimofstandardizingthewaytheproductwasofferedandaiding loan officers in explaining a complex newproduct to theirclients.Thisvideoofapproximatelythreeminutesexplainsthetermsoftheinsuranceproductinasimpleandhighlyvisualmannerandincludesabrieftestimonialfromaclaimant(seeBox2foranoverviewof the video content).

The video was designed to serve both consumer protection andmarketingfunctions:to inform clientsofhowtheinsuranceproductworks (explaining the price, coverage, government subsidy, andbenefitamount)and to convince themof theproduct’svaluebyshowing how it helped a claimant recover from damage to hiscrop.Whilethevideo’scontentaddressedbothofthesefunctions,it placed more emphasis on informing than on marketing. Thischoicewasmadeon theassumption that loanofficersareadeptatfindingcreativeways to sellproducts,appealing to theirclientsat an individual level. However, because they are not insurance expertsandbecausetheirprimaryfocusisoftenonsales,theymaynotalwaysbeadeptatexplainingthedetailsofarelativelycomplexinsuranceproduct.

3.3.2. Feedback on the sales protocol and tools

The sales guide (includingthe fourkeypointsabout the insuranceproduct)wasrememberedandusedbyloanofficers.Inparticular,loan officers who felt nervous about explaining a complicatedproductappreciatedthesupport thisguideofferedthemto focusonthemostimportantdetailsoftheproduct.

The videowasverywellreceivedbybothclientsandloanofficers.Crezcamos has updatedand is continuing to use the videoaftercompleted the fieldwork and is considering creating similar toolsforotherproducts.Ourqualitative interviews suggest thatproductdetailsexplainedinthevideoweremorelikelytobeunderstoodandremembered by clients than those with whom information that was lefttotheloanofficertoexplain(seeSection5).

Although some loan officers preferred not to use the video forall clients, there was general agreement that it offered a clear explanationoftheproduct,whichwasusefultosupportaninformedpurchasedecision.SomeCrezcamosstafffeltthatthevideowouldbemoreeffectiveifitconveyedamorepowerfulemotionalmessageabouttheconsequencesofnothavinginsuranceprotection.Others,however,appreciated that the videodidnotmakea “hard” sell.SeveralnotedthatitwasagoodwaytointroduceprospectiveclientstoCrezcamos,by showing themanewandunexpectedproductandexplainingitclearly.

“He showed me the video, and then I saw that, yes, I could really

benefit from this insurance.”

—Client, describing his reaction to seeing the video when the insurance

was offered

“The video is very didactic, and it gives clients more confidence

about the product.”

—Loan officer, reflecting on how the video supports sales

“Clients like the video and it helps them understand the product, but they don’t really pay attention to

the calculations.”

—Loan officer, explaining how the video supports client understanding

(vs. other tools)

Top: Crezcamos loan officer watches a video explaining the crop insurance with a client and her family.Bottom: Crezcamos loan officers practice calculating the insurance premium and benefit during a training session.

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The calculation worksheets wereseenbymostloanofficersandbyotherCrezcamosstaffasausefultooltoexplainthecoverageandpricetoclients,althoughsomeloanofficersfoundthemcumbersomeandsomepreferrednottousethem.Asapartofthestudy,ourresearchteamdevelopedaprototypeforaphoneapplicationthatcouldautomatethecalculationstomaketheprocesseasierforloanofficerswhileconveyingthisinformationtotheclient.Whilethisapplicationhasnotyetbeenrolledoutduetologisticalcomplications,Crezcamosiscontinuingtoexplorethispossibility.

Crezcamosdevelopedthemanagementofquestionsandconcerns,withsomeinputfromtheresearchteam.Crezcamos’ insuranceteamusedthis to refresh loanofficers’ training, though little feedbackwasconveyedaboutitsvalueinthesalesprocess.Similarly,enrollment formswereprovidedbytheinsurerandwerenotsubjecttoreviewforthisstudy.

Ourresearchdesigncombinesarandomizedcontroltrialwithqualitativeresearchtostudyvariouselementsof thecrop insuranceoffer. Specifically,we test the impactofunbundling the insuranceoffer from theloanapplicationprocessonpurchasedecisionsandrecallofproductinformation.Wealsoexploreclients’andloanofficers’perceptionsoftheinsuranceproduct,aswellasaspectsoftheclientrelationshipandinsuranceofferthatmayinfluencepurchasedecisions,understanding,andrecallofproductdetails.

4.1. Sample selectionThequantitativesample includedindividual loanapplicantsofnineCrezcamosbranchofficeswhohadatleastoneinsurablecropandappliedforaloanbetween11Marchand31October2015.Thesampleincludedfirst-timeandrepeatborrowersofCrezcamos,andapplicantswhoseloanswereapprovedanddenied.Itwasdeterminedthattheseclientswouldlikelynotbefamiliarwiththecropinsuranceproductasitwasanewproductintheregion.Theyalsosharesimilardemographiccharacteristicsasloan-eligiblefarmers.

4.2. The sales interventionTounbundletheinsuranceofferfromtheloanapplicationprocess,werandomlyassignedindividualswhowereintheprocessofapplyingforaloantobeofferedthecropinsuranceproductatoneoftwodistincttimes:duringthevisittotheclient’sfarm,orseveralweeks lateraftertheloanhadbeenprocessed.TheprotocolforthisinterventionissummarizedinFigure1.

4. Study Methodology

Figure 1. Protocol for the Sales Intervention


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Loanofficersuseda“randomizer”smartphoneapplicationtoassignloanapplicantswhohadaninsurablecropintooneoftwogroups.6The“jointinsuranceoffer”group—thecontrolgroup—wasofferedthecropinsuranceproductduringthesamevisitasthe loanapplication—atimewhenother insuranceproductsarealsooffered.The“separateinsuranceoffer”groupwasofferedtheinsuranceduringalatervisitaftertheloanwaseitherapprovedanddisbursedordenied.Loandecisionsand,whenrelevant,disbursementsgenerallyoccurwithinoneweekoftheloanapplication.7Thesecondvisitrequiredtocompletetheseparateinsurance offer occurred after this time, but not on the same day as the loan disbursement. This second visitgenerallyoccurredontheclient’sfarm,althoughitcouldalsooccurinanotherconvenientlocation.Becausethesecondvisitneededtocompletetheseparateofferentailedasubstantialaddedburdenforloanofficers,theywereofferedincentivestoincreasecomplianceinthisstudy.8Forloanapplicantsintheseparateoffergroup,loanofficersdidnotmentionthecropinsuranceproductbeforethesecondvisit.9 At leastthreeweeksaftertheinsuranceoffer,loanapplicantswerecontactedbytelephonetocompleteashort survey.

4.3. Sources of quantitative dataThetotalquantitativesampleincludes368individuals;itcomprisesallvalidusesoftherandomizerapplicationfor aCrezcamos loanapplicantwhogrewan insurable crop.10 The main sources of data used in our quantitativeanalysisareasfollows:

1. Administrative data fromCrezcamos on loan applicants offered the insuranceproduct, includingdemographics,loandata,andinformationaboutthefarm.

2. Administrativedatafromtheinsurancecompanythatunderwritestheinsuranceproductforindividualswhopurchasedinsurance,includingtheamountofcoveragepurchased,thecrop(s)covered,andthe area covered.

3. A brief telephone survey administered to individuals whowere offered the insurance product, toconfirmthattheinsurancewasoffered,testclients’understandingandmemoryofproductdetails,andunderstandsomebasicclientperceptionsoftheproductandtheoffer.

In total,154 loanapplicants respondedto thesurvey, representinga response rateof42percent.11 The relatively lowresponse ratecanbeexplainedbythedifficultyof reachingfarmerswhowork longhoursandliveinremoteruralareaswherephonesignalsareweakornonexistent,despitetheirhavingaccesstotheirownorsharedmobilephone.Itmayalsoreflectclients’mistrustandhesitancetosharepersonal

6. The randomization results synced automatically to a database in the Crezcamos system, allowing the research teamtotrackandmonitorcompliance.

7. At times these can be delayed for several weeks (e.g., if additional documentation or a co-signor is required).8. Loanofficersreceivedasmallcashprizeforeachseparateoffercompleted.Inaddition,foreachinsuranceoffer

(jointorseparate)completed,theloanofficerreceivedanentryinalotterytowinaniPad.9. Loanofficerswereinstructedthatifanyloanapplicantintheseparateoffergroupaskedthemaboutthecrop

insurancebeforethesecondvisit,theyshouldproceedwiththeofferatthattime,butwearenotawareofanysuch instances.

10. Loanapplicants assigned to the separate offer group forwhom the insuranceoffer could not be completed(because,forexample,theysoldtheirfarmornolongergrewaninsurablecropatthetimeofthesecondvisit)werenotincludedinthesample(six loanapplicants).Whentheinsuranceoffercouldhavebeenmadebutwasnot(because,forexample,theloanofficerdidnotcompletethesecondvisitintimeortheloanapplicantrefusedthesecondvisit),theindividualwaskeptinthesample,consistentwithanintent-to-treatanalysis(13loanapplicants).

11. Weattemptedtocontactallmembersofthesampleforsurveys—ofthosewhocouldnotbesurveyed,about60percentcouldnotbereachedbytelephoneduetolowconnectivityandinconsistentaccesstotelephones,and40percentrefusedtocompletethesurvey.

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information over the phone. Survey respondents were notsignificantlydifferentfromnonrespondentsintheirdemographicor socioeconomic characteristics.12Respondentswere,however,more likely to have purchased insurance13 and bought larger amountsofcoveragethannonrespondents.14Totheextentthatthesedifferencesbiasourfindings,theyarebiasedinawaythatreinforces rather than contradicts the conclusions of our study.

4.4. Descriptive statistics of the quantitative sampleTable1summarizesbasicdescriptivestatisticsofthequantitativesample,includingdemographic,socioeconomic,andloandata.Most of the loan applicants in the sample weremarriedmenwho had some formal education, although few attended school beyondtheprimary level.Theyhadanaverageof2.9childrenbutonly1.1dependentslivingwiththematthetime.TheaverageloansizeofUS$1,268representsoverfourmonthsoftheaverageincome for a rural household in Colombia, according to 2014censusdata(DANE2015).Thisloansizereflectstherelativelyhighinvestmentneedsinagriculture,whicharedifficulttofinancewithhousehold income.

Allindividualsinthesamplehadsomeagriculturalactivityastheirprimaryeconomicactivity,andall growat leastone insurablecrop (which may be a primary or secondary source of theirincome).Ninetypercentgrewaninsurablecropastheirprimaryeconomicactivity(seeFigure2).Permanentcrops(coffeeandcocoa,inparticular)arebyfarthemostcommonprimarycrops(see Figure 3).

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12. Including age, gender, marital status, number of children, number of economicdependents,homeownership,education,loantermandamount, and number of economic activities.

13. Twenty-eight percent of survey respondents and 19 percentof nonrespondents purchased insurance (p=0.048 from a t-testof the difference in take-up between survey respondents andnonrespondents;ap-valueoflessthan0.05indicatesastatisticallysignificantresult,whilep-valuesbetween0.05and0.10aremarginallysignificant).

14. SurveyrespondentswhoboughtinsurancepurchasedanaverageofUS$1,567ofcoverageandnonrespondentspurchasedanaverageof US$932 (p=0.039 from a t-test of the difference in coverageamountbetweensurveyrespondentsandnonrespondents).

15. For a family of four in rural Colombia, average household income in 2014wasapproximatelyUS$300; thenationalpoverty line is setat US$170 for a rural household of four. Income and expendituredatacollectedbyCrezcamosarenotreliableforthepurposeofthisstudy,sowedonotreporttheminthispaper.

Samplesize 368Female 25%

Average age 44.6Married 68%

Average number of children 2.9

Average number of economicdependents 1.1

Any formal education 93%

Average number of economic activities 2.4

Ownhome 70%Loan denied 11%

Average loan amount (US$) $1,268

Average loan term (months) 20.1

Assignedtoseparateoffer 47%

Purchasedcropinsurance 23%

Descriptive statistics of Table 1. the quantitative sample

Primary economicFigure 2. activities, by category


4.5. Qualitative dataOurmainsourceofqualitativedatawasaseriesof3016in-personqualitative interviews with current Crezcamos borrowers. These wereidentifiedthroughthethreebranchofficeswiththelargestnumberofloanapplicantsincludedinthestudy(Rionegro,Lebrija,and Socorro). Clients were selected primarily based on theirlocation vis-à-vis main roads and branches to facilitate access. Theytypicallylivedandworkedonremotefarmswithlimitedroadaccessbutwithin 45–60minutesofa small-townbranch. Table2providessummaryinformationonthequalitativesample.Mostof the individuals interviewedalso formpartof thequantitativesample.Qualitativeinterviewsprobedtheissuesoftrust,pressure,distraction,understanding,recall,andempowermentrelatedtotheborrowingprocessandtheinsuranceoffer.

Mostqualitativeinterviewstookplaceinborrowers’homes;otherswere conducted in conveniently located restaurants or, in a few cases, in Crezcamos branches. Nine qualitative interviews were heldoverthephonewithCrezcamosclientstoreviewandprobemoredeeplysomeoftheirresponsesfromthequantitativephonesurvey (these are not included in Table 2).

QualitativeclientinterviewswerecomplementedbyinsightssharedbyCrezcamosloanofficersandtheirsupervisorson the insuranceproduct, the salesprocess,and theirclients’ reactions.Our research teammaintainedclosecontactwiththemthroughoutthestudypreparationandimplementationperiod,andrecorded the feedback they shared.Duringfieldvisits, seven loanofficerswere interviewed individuallyabouttheirsalesprocessandtheirimpressionsofthestudy.17Focusgroupswerealsoheldwithloanofficersfromthethreebrancheswiththehighestsalesoverthecourseofthestudy.Thefirsttookplacemid-studytounderstandsomeofthehesitationloanofficersshowedtosellinginsuranceandthefinaltwoattheendofthestudytogainloanofficerimpressionsofclientunderstanding,recall,andpurchasedecisions.

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Samplesize 30Female 32%Married 64%

Permanentcrop(s) 100%Transitorycrop(s) 24%

Assignedtoseparateoffer 44%

Offeredcropinsurancebefore interview 68%

Purchasedcropinsurance 50%

Descriptive statistics of Table 2. the qualitative sample

Figure 3. Most common primary economic activities

16. Twenty-four individuals were interviewed in May 2015 and six in December 2015. In addition, nine qualitativeinterviewswereconductedbytelephone.

17. Ofthe39loanofficerswhoparticipatedinthestudy,theseloanofficerswereselectedbecausetheyhadalargenumberofinsuranceofferswithinthestudyperiod.

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This section explores our study’s findings on clients’ insurance purchase decisions, perceptions, andunderstanding.Althoughoveralltake-upoftheCrezcamoscropinsurancecomparedfavorablytotake-upofsimilarinsuranceproductsinothercountries,wefoundnostatisticallysignificantimpactontake-upfromseparatingtheinsuranceofferfromtheloanapplicationprocess.Overall,clientspurchasedrelativelysmallamountsofcoveragewhencomparedtothemaximumamountstheycouldhavepurchased.Recallofthedetailsoftheproductandpurchasedecisionsaftertheofferwasquitelow,inboththebundledandseparateoffergroups. Inaddition,wefindthatthe influencesofpressureanddistraction,twopathwaysbywhichbundling theproductscould influenceunderstandingandpurchases,are less significant thanhypothesized.Clientsperceived thepurchasedecisionas truly voluntary, and theproduct’s coverage,relevance,andpriceallgreatlyinfluencedpurchasedecisions.Wedescribebelowgeneralfindingsrelatedtopurchasedecisionsandproductperceptions(Sections5.1–5.3),recallofinformation(Section5.4),andpressure(Sections5.5–5.6),beforedelving inmoredetails intothe impactoftheunbundling intervention(Section 5.7).

5.1. Take-up rate was comparatively high, but average coverage was low Take-upof thecrop insurancewas23percentacross the full sample,a take-up ratehigher thanmanyrecordedforagriculturalmicroinsuranceproducts(seeSection2.1).Table3summarizesclients’purchasedecisions.Therewerestarkdifferencesintake-upbetweencroptypes,withmuchhighertake-upamongfarmerswhoseprimarycrop ispermanent,and lowertake-upamongfarmerswithtransitorycrops.18 This differencelikelyreflectsdifferencesintheproductstructureandpricing:theinsurancefortransitorycropsis,onaverage,moreexpensivethancoverageforpermanentsasapercentageoftheinsuredamount.19 Inaddition,theproductisperceivedbymanyclientstobemorerelevantforpermanentcropsforseveralreasons (see Section 5.3).

Most policyholders purchased relatively small amountsof coverage, on average US$1,257 (about the size of the average loan amount), although coverage amounts varied substantially, ranging from US$167 to US$8,333.On average, 69 percent of the premium amount wassubsidized,andpolicyholderspaidUS$13.51outofpocket.Policyholderspurchased,onaverage,onlyaquarterofthemaximumcoverageallowedby the insurer for theircrops.Mediancoverageisevenlower,at17percentoftheamountallowed.Wediscuss somepossible reasonsfor these purchase decisions (including price, qualityperceptions, understanding, and pressure) in Sections5.2–5.6.Take-upbetweenthejointsaleandseparatesalegroupsdidnotdiffer,whichwediscussingreaterdetailinSection 5.7.

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5. Findings

18. Differencesbetweenthetwogroupsinamountofcoverageandpremiumpaidcouldnotbeanalyzedduetothesmallnumberofpurchasersfortransitorycrops.

19. Presubsidypremiumsare6–9percentoftheinsuredamountfortransitorycropsandare3–4percentoftheinsuredamountforpermanentcrops;mosttransitorycropsalsohavealowerpremiumsubsidythanpermanent.

Purchased insurance (%offullsample) 22.8

Permanentcropownerswhopurchased(%ofpermanent

cropowners)25.2

Transitorycropownerswhopurchased(%oftransitory

cropowners)7.8

Averagepremiumpaid(US$) $13.51 Average subsidy amount (US$) $30.14

Average coverage amount (US$) $1,257 Coverageasapercentageofmaximumallowedcoverage 25.1

Table 3. Insurance purchase decisions


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5.2. Price was highly relevant to the purchase decisionAboutaquarterof thesurvey respondentswhodidnotpurchasetheinsurance cited price and liquidity constraints as the reason for thisdecision.20 Among those who purchased the insurance, the level ofcoveragealsosuggestsahighdegreeofpricesensitivity.Despitethehighsubsidies,purchasersgenerallyboughtonlysmallamountsofcoverage.Thisisconsistentwithpriorstudies(e.g.,Coleetal.2011;Giné,Menand,Townsend,andVickery 2010),which finddemand formicroinsuranceproductstobeextremelypricesensitive.Pricewasparticularlyrelevantto clients with smaller farms and loan sizes, who bought smaller amounts of coverage (both in absolute size and in relation to the maximumamounttheycouldhavepurchased)thanborrowerswithlargerloans.21

Qualitative interviews also suggest that the relatively low amount of coveragepurchasedinpartreflectstheimpactof“stickershock”amongthe targetclientelewhohadneverbeenoffered insuranceproductswithpremiumsofthissizeandforwhomcropinsurancewasanewandunfamiliar product.Most clients’ prior experiencewith insurancewaslimited to the life and accident coverage offered by Crezcamos and other lenders,whichhasmuch lowerpremiums.Startingpremiums forthelifeandtemporarydisabilityinsuranceofferedbyCrezcamoswereapproximatelyUS$1.70,whilethecropinsurance,evenattherelativelysmall amounts purchased, had an average premium of nearly eighttimes that amount. In qualitative interviews, many farmers reportedpurchasinginsuranceasafunctionofthepremiumcostratherthantheamountofcoveragethatthispremiumcorrespondedto.Ratherthantakingintoaccounttheirneedsincase of a weather event (i.e., the amount of their original investment), these clients considered their liquidity atthetimeofpurchase.Insomecases,theinabilitytofinanceapurchasemayhaveeitherreducedthewillingnesstopayhigherpremiumsordelayedthepurchasedecision.

While liquidity was broadly relevant to decision-making for many clients, a minority of clients were constrained bytheir income.Fortheseclients, low incomeandanoverall limitedcapacitytopay(regardlessof theavailabilityoffinancingforthepremium)alsoinfluencedtheirdecision.Crezcamosloanofficersnotedthatasmallnumberoftheiragriculturalclients(estimatedat15–25percent)aresubsistencefarmerswhohavelimitedornosparecashattheendofthemonthafterpayingtheirbills.

Qualitativeinterviewresponsessuggestthatotherconsiderationsbeyondliquidityandincomeconstraintsmayhavealsoinfluencedtheirwillingnesstopay.Someclientssaidtheybeganatalowpremiumamountto“trytheinsuranceout”becauseitwastheirfirstcropinsurancepurchase.Otherssuggestedtheymayhaveboughtalowamountasawaytoavoidrejectingtheofferaltogether,thoughtheywerenotconvincedoftheproduct.Severalloanofficersunderstoodtheirclients’financialconstraintsandbehaviorsandrefrainedfromoffering largeramountsofcoverage from theonset,claiming that theywould “lose theclient”or“scaretheclient”iftheyintroducedtheproductwithalargecoverageamount.Instead,theybeganthesale by immediately offering small coverage amounts to some of their clients rather than guiding them to

20. Other common reasons given for nonpurchase included concerns about the product’s relevance or quality(together,accountingforapproximately40percentofthereasonsfornonpurchaseanddiscussedinSection5.3)anddelaysorotherlogisticalproblems(14percentofnonpurchasers).

21. InsurancepurchaserswithaloansizebelowthemedianamountboughtonaverageUS$988ofcoverage,or22percentofthemaximumcoveragetheycouldhavepurchased.ThosewithaloansizeabovethemedianboughtonaverageUS$1,514ofcoverage,or28percentofthemaximumcoveragetheycouldhavepurchased.

“When we know the client’s cash flow, we sometimes begin from the bottom [of the range

of premiums].”

—Crezcamos loan officer with high average premium and

below-average take-up

“I start to quote insurance from the amount needed to

cover the client’s investment in his crop.”

—Crezcamos loan officer with lowest average premium and

highest take-up

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thinkintermsoftheamountinvestedandthecostofreplacingtheirplants.Inthecaseofloanofficerswhofelttheirclientswereabletopayformorecoverage,somenotedthattheyinsteadofferedtocoverthefull amount of the investment from the onset, and would reduce this amount only at the insistence of the client. Inmanycases,accordingtoloanofficers,this latterstrategywouldleadclientstorejecttheofferaltogether.

5.2. Perceptions of the product’s quality and relevance varied but were generally positive Perceptions of the product shared during qualitative interviews were generally positive, even amongnonpurchasers,whooftenthoughtthattheproductcouldhelpsomepeopleorthattheymightpurchaseitinthefuture.Asmallminoritydidnotfindtheproductusefulatall.Table4summarizesthepositiveandnegative attributes of the product reported by clients in qualitative interviews. The main explanationsrespondentsgavefortheproduct’svaluewereitsaccessiblepriceandtheimportanceofthecoveredrisk.Complaintsabouttheproductcenteredontherisksandeventsitdoesnotcoverand/ortherespondent’sother means of dealing with climate risks.

Relevance of the coverage seems to have been the single most important determinant of purchasedecisions.Amongnonpurchaserswhorespondedtooursurvey,themostcommonreasongivenforfailingtopurchasetheproductwasthatitwasnotrelevanttotheirneeds(citedby39percentofself-reportednonpurchasers).Ofthesepeople,abouthalfreferredtothelimitedclimaterisktheircropfacesorthestepsthey have already taken to mitigate that risk.

Table 4. Client perceptions of the crop insurance (qualitative interviews)

Positive attributes of the product

Negative attributes or reasons the product is not relevant

The risks it covers are important.

Price is accessible

and/or subsidy is

helpful.

It protects my investment.

“The world has changed… and you can never know when that type of weather damage will come here.”

“I think a lot about the risks of my crop.”

“Last year, there was a bad drought in the summer.”

“The price is economical for what it covers.”

“It wasn’t expensive… that’s why we bought it.”

“It’s a manner of protecting our work.”

It doesn’t cover my most important risks

I’m very unlikely to get anything

from it

I don’t face very much risk, or I

cope with my risk in other ways

I can’t afford it

“My greatest risk is related to market price, especially with the pigs—the costs are consistent and very high, but the price in the market varies a lot.”

“Last year I lost half of my guanabana crop, but the trees didn’t die.”

“We chose to plant the crops we have because they’re less risky”

“The farm is secure. Yes, there are risks, but we won’t lose all of the crop.”

22. Aboutaquarterof respondentsmentioned theproduct’spriceand/or liquidityconstraintsasa reason fornotpurchasing.Asmallernumberofrespondentsdidnotbuybecausetheydidnottrustorknowenoughabouttheproduct(11percent),becausetheirloanwasdelayedornotapproved,orotherlogisticalproblems(14percent).


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In qualitative interviews, nonpurchasers universallydescribed the product as covering only a smallportion (one-thirdor less)of the total risks theircropfaces. However, even among purchasers, whosaw theproductasvaluable, some reported that itcoveredonlyasmallportionoftheirrisks.Whiletheyunderstoodthattheproductplaysalimitedroleandwere aware of the important risks that it does notcover, they still viewed it as valuable.

Loanofficers’perceptionsof theproductwerealsogenerally positive. The importance of the coveredrisks resonated with them, in particular as a failedcrop can impact a borrower’s ability to repay theloan. Loanofficers also recognized thepotential oftheproducttodifferentiatethemfromotherlenderswho do not offer anything similar.

Aclueabout the importanceofproduct relevancein determining take-up emerges when we analyzeinsuranceoffers for permanent and transitory cropsseparately(seeTable5).Forpermanentcropsthereis no difference in uptake between the joint andseparate groups. However, among insurance offersfortransitorycrops,noborrowerintheseparateoffergrouppurchasedtheinsurance.

The preference among farmers for coveringpermanentcropscanalsobepartiallyexplainedbytheproductlosingrelevancewhentheofferhappenstoo late in the growing cycle. This may have been particularly relevant for separate insurance offers,which were made several weeks after the loan application.Asimilardelaywouldnothaveimpactedthe product’s relevance to a permanent crop, asthat coverage is not linked to a growing season. This nuance suggests that the product was understoodand valued for its relevance by clients at the time of the offer.We expand on the understanding of theproductbyclientsinthenextsection.

“Because of that weather event, my client defaulted… she lost her crops, and had no

means to pay the loan.”

“It’s another product we have to offer clients. Other lenders don’t have this insurance.”

“My client came into the office the other day to claim 7 million pesos. When she

bought the insurance, her husband was very angry that she wasted her money. Now they

both came in and told me I was their good friend.”

—Crezcamos loan officers, reflecting on the benefits the products may have to them

Take-up among transitory and Table 5. permanent crop holders

All crops (n=366)

Permanent (n=315)

Transitory (n=51)

All offers 22.8% 25.2% 7.8%

Joint offers 24.5% 26.5% 13.3%

Separate offers 20.9% 23.8% 0.0%

Many Crezcamos borrowers have diversified income streams, including various crops, livestock, and nonfarm income.

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Althoughsometransitorycropholdersinthejointoffergrouppurchasedtheinsurance,take-upinthisgroupisstill far lowerthanit isforpermanentcropholders.Thismayalsobedrivenbytheproduct’sperceivedrelevance fordifferentcrops. The termofcoverage is shorter for transitorycrops than forpermanents.23 Whencoupledwithhigherpremiums, this led someclients toperceivecoverage for transitorycropsasofferinglowervalue-for-money,thoughitisalsomorelikelytoresultinabenefit.Further,abouthalfofoursamplegreweithercoffeeorcocoaasaprimarycrop.Thesearepermanentcrops thatare ingeneralmorevulnerabletoclimaterisksthanotherpermanentcropsintheregion.Theyarealsoamongthemostprofitablecrops in the region,and require substantial investmentandcare, suggestingahigh returnoninvestment but also high risk.

5.4. Product understanding was relatively high, but recall was low Qualitativeinterviewswithbothclientsandloanofficerssuggest that the sales protocol used in this studysucceeded in conveying to most clients the information theyneededtomakean informedpurchasedecision.However,despitethisgoodinitialunderstanding,surveyresponses reveal low recall of product information,reflectingapossiblegapinclients’abilitytomaintainanduse theirpolicieseffectivelywithoutadditional supportfromCrezcamos.Thelowrecallwefindisconsistentwiththe literature (see Section 2.6).

Qualitative interviews revealed that at the moment the crop insurance is explained to them, clients generallyunderstand the pertinent details quite well. To testthis hypothesis, we interviewed clients about the loanofficers’ (earlier) insurance offer but also asked loanofficers to repeat sectionsof the salesprotocolduringvisits and asked clients for feedback immediately after. This approach enabled us to better understand howclients understood and perceived the product at thetimeitwasexplainedtothem.

Clients felt that their loanofficerswereable toexplainthe product clearly and answer any questions theyhad. Most felt that they understood the product wellenough to make a decision, although a few described the explanation as rushed. Immediately after viewingthevideoandhearingtheloanofficer’sexplanationoftheproduct,clientscouldexplainthebasicfeaturesofcoverage, including the events covered, the damage their crop must suffer to be eligible for a claim, theapproximate price, and the coverage amount. Somewere able to point to more detailed features of the

23. Coverageforpermanentcropsisannual,whilethelengthofcoveragefortransitorycropsislinkedtothecropcycle(150–300days).

“[My loan officer] is very helpful; if I have a question or need anything, he explains it to

me.”

“I didn’t have any doubts after the explanation.”

“[The loan officer] didn’t really spend much time explaining the insurance. He said an

estimate of the price, but I don’t remember. It was very fast—I think he was in a hurry, and I

also had to get back to work.”

“We were working on the farm when our loan officer arrived but we still took the time

to listen to him for a long time so that he could explain [the product].”

—Crezcamos clients, expressing different views on the amount of information they were given

Crezcamos loan officer and client watch the crop insurance video together.


21

product,suchasthegovernmentsubsidy,whichisfeaturedprominentlyinthevideo.Manyalsounderstoodtherewasasmalldeductibleportionthatwouldnotbecovered.Itwasalsoclearthatphotosoftheircropswouldbetakenpriortoenrolling,andthatanassessmentwouldtakeplaceinthecaseofaclimateeventtoevaluatetheireligibilityforaclaimpayment.Thereissuggestiveevidencefrombothloanofficerandclientinterviewsthatinformationontopicsnotincludedinthevideowaslessconsistentlycommunicatedandlessclearlyunderstood.Forexample,oneclientweinterviewedonedayaftertheinsuranceoffernotedthathewasnevertoldanexactcoverageamount(thisinformationisnotincludedinthevideobecauseit isbasedonanamountostensiblychosenbytheclient).Someloanofficersalsonotedthat insteadofusingworksheetstocalculatepremiumandbenefitamountsforclients,theysometimesestimatedthesenumbers.

Wemeasured recallofproductdetailsata timethreeormoreweeksafter the insuranceoffer throughtelephone surveys. Despite understanding product details well initially, both qualitative interviews andsurveyresponsessuggestthatclientsstruggledlatertorecallthisinformation.Inqualitativeinterviews,clientswhohadbeenofferedtheproductmorethanafewweeksearliergenerallyneededtoberemindedofthedetailsoftheproduct.Manysurveyrespondentsfailedtoremembereventhemostbasicinformationabouttheproductandtheirpurchasechoices.Webelievethatthesurveyresponsesmayunderestimaterespondents’ recall,24 but in any case they reflect substantial gaps inmemory. Thirty percent of surveyrespondentsansweredincorrectlywhetherornottheypurchasedtheinsurance—nearlyallofthesewereindividualswhoreportedpurchasingtheinsurancebutforwhomapolicywasnotissued.25

Table6summarizestherecallofproductandpurchasedecisionsamongpurchasers.

24. Audits of survey results suggest that some respondentsmayhavemisunderstood someofquestions theywereaskedaboutproductdetails.

25. Auditsofsurveyresultssuggestthatsomerespondentsmayhavemisunderstoodthisquestion(perhapsthinkingthatitreferredtootherinsurancepurchasedthroughCrezcamos);itisalsopossiblethatsomeoftheserespondentsthoughttheyenrolledinthecropinsurancebuttherewassomeproblemintheenrollmentprocess,althoughwedid not investigate this directly.

Table 6. Recall of product and purchase decision (among purchasers)a

% of purchasersIncorrectlyreportedthattheydidnotpurchaseinsurance 4.65

Incorrectordonotrememberthepremiumpaidb 58.54Incorrectordonotremembercropcovered 29.27

Incorrect or do not remember covered eventsc 58.54Incorrectordonotrememberbenefitamountd 96.96

a. Responsesfromtelephonesurvey(n=41)b. Responseswithin10percentoftheactualpremiumpaidwereconsideredcorrect.Eighty-onepercentofnonpurchasers

didnotremembertheamounttheywouldhavepaidiftheyhadbought,butwherenon-purchasersmentionedapricetheywouldhavepaid,theirresponsecouldnotbeverified.

c. Gaveoneormoreincorrectresponsetothequestion“whatrisksoreventsdoestheinsurancecover?”d. Responseswithin10percentofactualbenefitamountwereconsideredcorrect.

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Whilenearlyallpurchaserscorrectly rememberedhavingpurchased insurance, recallofother relevantinformationwas far lower.Fifty-eightpercentofpurchasers showedsomeconfusionabout thecoveredevents,givingatleastoneincorrectanswerwhenaskedwhateventsarecovered.Nonpurchaserswereeven more likely to answer this question incorrectly.

Oneofthemainrisksofpoorrecallisthatclientsmayforgettorenewpolicies.InthecaseofCrezcamos,thisrisk isparticularlyrelevantduetothemismatchbetweenloanandinsuranceterms: insurancepolicyterms vary between 3 and 12 months, while loan terms vary between 3 and 36 months. A branch manager notedthatrecently,aclientarrivedatthebranchinfuriatedthathewasnotremindedtorenewhispolicy.Hismangocrophadsufferedalossonlyafewweeksafterthepolicylapsedandhehadnowayofmakingaclaim.Anotherriskisthatpolicyholderswhosufferfromweather-relatedeventsmightnotmakeaclaimatallbecausetheydon’trecallowninginsuranceorhowtheclaimsprocessworks.Somepolicyholdersmayhaveunrealisticexpectationsaboutthesizeofapayoutbecausetheydonotrememberthecoverageamount.Aloanofficersharedthestoryofaclientwhoreceivedasmallpayoutwhenhemadeaclaim,andwassurprisedanddisappointedbyhowlittlehereceived.However,theloanofficerrecountedthattheclientwasultimatelyhappybecause“atleasthereceivedsomething.”

Failure to recall certaindetails of the insuranceproduct, however, should notalwaysbeconsideredaproblemforthepolicyholder.Fewindividuals,indevelopedanddevelopingcountriesalikeandregardlessof their education level or socioeconomic status remember detailed features of their insurance contracts. However,lowrecallpointstoaneedforadditionalsupport(byremindingclientsofpertinentinformationattimes it isneededorhelpingthemmakeclaims, renewcoverage,ortakeotherstepsneededtousetheproducteffectively).Here,both informationandsupportareavailableat theCrezcamosbranches,whereloanclientsmakemonthlyloanpaymentsinpersonorthroughfamilymembers.Indeed,whenaskedduringqualitativeinterviewswhattheywoulddoiftheyexperiencedaninsuredloss,mostclientsrespondedthat theywouldcalla loanofficeror visitaCrezcamosbranch.Oneclient instead referred tocontactinformationoftheinsurancecompanyonhispolicycertificate.Remindersystemsmightalsobeestablished,though they must be tailored to the needs and habits of the clients. We discuss the relevance and use of reminders further in our conclusions below.

5.5. Direct pressure to purchase the product was almost completely absentThestudydesignrequiredCrezcamostoshiftitsapproachtosellingthecropinsurance.Priortothestudy,the insurance team trained loan officers that when a loan applicant had an insurable crop, the loanshouldalwayscomewith insurance.While itwasnot technicallymandatory, loanofficers’performancewasmeasuredagainsttheirabilitytosellapolicywitheveryagriculturalloan.Ourstudydesignreliedona transparentandvoluntaryprocess,with littleornodirectpressure topurchase. Thiswasnecessary forpurchasedecisionstoreflectonlythe(standardized)salesprocessandtheimpactofthetimingintervention.

Loanofficers,usingthesalesprotocoldescribedinSection3.3,weresuccessfulinconveyingthevoluntarynatureof theproduct.Very fewof the loanapplicantssurveyed(3.8percent) reportedfeelingpressurefromCrezcamosorfromtheirloanofficertopurchasetheproduct.Additionally,hadclientsperceivedalinkbetweeninsurancepurchaseandloanapproval,wewouldexpecttohavedetectedahighertake-uprateamongthejointoffergroup,whichwasnotthecase.

Qualitative interviewsalsounderscored thatclients trulyperceived theproductasa voluntaryoffering.Noclientswhowereofferedthecropinsurancesincethestudybegan(andsincethestandardizedofferprotocolwasimplemented)mentionedinqualitativeinterviewsfeelingpressuredtobuytheproduct,andallunderstoodthattheywerefreetoturnitdown.ThisapproachalsostandsincontrasttothewayotherinsuranceproductsaresoldbyCrezcamosstaff.Inparticular,thesaleofvoluntarylifeinsuranceisintegrated


23

intotheloanapplicationsoseamlesslythatitcanbeoverlookedbytheclientorperceivedasanautomaticpartof the loanprocess, rather thanadistinctchoice.Whenasked inqualitative interviewsaboutanyotherinsurancecoverage,respondentsweremorelikelytomentiontheinsurancetheyhavethroughotherlendersthantheproductsCrezcamosoffers.However,nearlythree-quartersofCrezcamosborrowersarecoveredbythevoluntarylifeinsuranceandallarecoveredbythemandatorycredit-lifeproduct,whichsuggeststhatsomepeoplewhopurchasetheCrezcamoslifeinsuranceproductsarenotfullyawareoftheircoverage.

5.6. Some clients may feel indirect pressure to purchase insurance, linked to low levels of empowerment Evenintheabsenceofdirectpressureorobligationtopurchaseaproduct,itmaybepossibleforaclienttofeelcompelledtobuyit.Thismoreindirectpressurecouldbearesultofthepowerdynamicsbetweentheloanofficerandapplicantorthestressofapplyingforaloan.Ourqualitativeinterviewsexploredtheseissuesandfoundthatdifferentclientsexperiencetherelationshipwiththeloanofficerinverydifferentways.

Whenweasked to reflecton the relationshipofborrowingand the loanapplication toempowerment,clientsgaveawidevarietyofresponses.Abouttwo-thirdsfeltempoweredduringtheloanprocess,becausetheywereconfidenttheywouldgettheloanand/orbecausetheyknewthatifdenied,theycouldgetaloanelsewhere.Theotherthirdfeltdisempowered,generallybecausetheythoughttherewasachanceofbeing rejected,becausetheyneededthemoneyurgently,and/orbecausethey feltuncomfortablethattheirabilitytopaywasbeingexamined.Additionalreasonscitedforfeelinglessempoweredincludedhavinglessunderstandingoffinancialissuesthantheloanofficerorlowerlevelsofeducation.

Crezcamosloanofficersgenerallyexpressedtheviewthattheirclientsdominatedtherelationshipduringtheloanapplication.Loanofficerswerekeenlyawareofthechoicestheirclientshaveasaresultofhighlycompetitivecreditmarketsintheregion.Someloanofficersexpressedreluctancetoofferaproductiftheyareexpected toobligateclients tobuy it. Somementioned feelingnervouswhenoffering theproductbecauseitwascomplicatedandunfamiliartothem:“Inthebeginning,wefeltlessempowered,wedidn’tknowhowtosell.Nowwedo.”Others,however,recognizedthatsomeoftheirclientsaremoreamenable

“I knew it was voluntary, but my loan officer said

I had to buy it to get the loan…. It would be best if,

when we said no, they would just

accept the ‘no.’”

—Borrower who, before the study

began, had been pressured to purchase the

insurance

“People assimilate the information we are explaining

better [when it is a voluntary sale]. Even if they don’t buy

the insurance right away, they will ask for it later.”

“Before, we had to insist and pressure clients, because we

had the obligation to sell. Now, our role is to convince

them.”

—Crezcamos loan officers, reflecting on the shift to voluntary

offers

“It’s not obligatory… you feel free to make a choice.”

“It was just an offer, not a requirement.”

“I knew my decision wouldn’t influence my loan approval.”

“[My loan officer] explained all the benefits, but I decided I don’t want it. He said ‘OK, that’s fine.’”

—Crezcamos borrowers who were offered the crop insurance during the

study, reflecting on the offer

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to follow theiradvice,particularly thosewith lowlevels of education or who were nervous about havingtheirloanapproved.Theyunderstoodthatthere are clientswho feel less empowered thanothers. Specifically, they referred to someclientswith low levels of education or clients who were nervousabouthavingtheirloanapprovedasmorewillingtoagreetotheirloanofficer’ssuggestions.

In sum, although clients did not feel direct coercion orobligationtopurchasetheinsurance,somemayhavefeltsomeindirectpressure.Thispressuremaybe felt particularly strongly by more vulnerableclients, who are more likely to feel overwhelmed orintimidatedbytheloanprocessorbytheirlackof familiarity with insurance.

5.7. The unbundling intervention did not influence clientsSeparating the insurance offer from the loan application through the unbundling intervention did notimpacttake-up.Thetake-upratewashigherinthebundledoffergroup(24.5percent)thanintheseparateoffergroup(20.9percent),butthedifferenceisnotstatisticallysignificant(seeTable7).Weanalyzedthedatausing simple t-testsaswellasmore robust regressionmodels;all suggest that thedifference isnotstatisticallysignificantlydifferentfromzero.Wealsoestimatedheterogeneousimpactsbyloanapplicant’sgender,age,educationlevel,loansize,andcroptype.26Noneoftheregressioncoefficientswasstatisticallysignificant,andthecoefficientsthemselvesvarylittlefromsubgrouptosubgroup.

“I feel in control when I’m applying for a loan; I don’t

have any doubt that I’ll receive it.”

“It makes me feel good when the loan officer visits my

farm. They recognize that, yes, we’re working hard.”

“I knew I would get the loan; I have good credit.”

—Crezcamos borrowers who feel empowered during the loan

process

“I get nervous that they [clients] will ask

a lot of questions.”

“We are afraid that clients will see

the insurance as an obligation; we’ve

lost loan clients because of this.”

—Crezcamos loan officers, reflecting on

their insecurities early in the study when

offering the product

“When I’m applying for a loan I feel nervous… I’m thinking about the

possibility that it won’t be approved.”

“I worry that I won’t be approved, that I don’t have the right papers,

that they’ll ask for a guarantor (which I don’t have).”

“One feels she has less power because they know more than I do

[about insurance], they have studies.”

—Crezcamos borrowers who feel disempowered during the loan or

insurance sales process

26. Althoughwefindastatisticallysignificantdifferenceintake-upbetweenthejointandseparateoffergroupamongtransitorycropholders,thisdifferenceseemstobedrivenbylowerperceivedrelevanceatthelatertime,ratherthanfromunbundlingtheofferfromtheloanapplication(seeSection5.3).

Crezcamos loan officers in Socorro, Santander


25

Wehypothesized that separating the offer of insurance fromthe loan application processmight affect take-up rates andunderstanding: (i) borrowers offered the insurance after theirloanhadbeenprocessedmightbe less stressedandworriedabout their loan application, less likely to be cognitivelyoverloaded, and more likely to be receptive to informationaboutanewandcomplexfinancialproduct,and(ii)lowerstressand cognitive load would translate into a higher understanding oftheproduct.Wenowturntoestimatingthe importanceofeach of these factors.

First,distractioncausedbytheworkorhouseholdresponsibilitiesinterrupted during a loan officer visit, the multiple questionsrequiredfortheloanapplication,theneedtofinddocumentsandbillstoshowloanofficers,andthestressofunderstandingandapplyingfora loancouldcreatedistractionwhichmightleadanindividualtoputoffthepurchaseofanotherproduct,ortounderstandorrememberlessaboutaproducthepurchased.

However, respondents in qualitative interviews who hadreceived the insurance offer during the same visit as the loan application did not directly report being distracted by theloanapplicationprocesswhentheirloanofficerexplainedtheinsurance,nordid their responses indirectly suggest that theymight have been distracted at that time. Clients generally perceivedtheinsuranceofferasdistinctfromtheloanprocess,whichendedbefore the insurancewasbroughtup. They feltthattheyweresufficientlyabletofocusontheinsuranceofferand to make a sound decision at that time.

Loanofficersalsoperceivedthejointofferasmoreeffective,inlargepartbecausetheriskismostsalientatthetimeoftheloanapplication, given the large investment clients are planningtomakeintheircrops.Theyreportedthatloanapplicantsarethinkingabouttheproductivityoftheircropandtheircapacityto repay the loan, and aremore receptive to an insuranceproductthatprotectstheirinvestmentatthistime.

27. P-valuefromat-testofthedifferenceinmeantake-upbetweenthejointoffersandseparateoffersgroups.

Table 7. Take-up in joint and separate offer groups

All offers Joint offers Separate offers p-value27

All crops(n=368) 22.8% 24.5% 20.9% 0.418Permanent(n=317) 25.2% 26.5% 23.8% 0.587

Transitory(n=51) 7.8% 0.3% 0.0% 0.084

“I had been working in the field, but I came to my house to speak to the loan

officer. I stopped working.”

—Loan applicant who was not distracted by work at the time of the loan application

“It was at the same visit, but I didn’t feel distracted by the loan. “[When

we talked about the insurance], we’d finished talking about the loan. It was a

separate moment.”

—Loan applicant who perceived the insurance offer as distinct from the loan

process

“It makes sense to buy crop insurance from Crezcamos, because they are lending me money for the crops.”

—Crezcamos client, reflecting the salience of the insurance offer during the loan

application

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Table 8. Recall of product information in the joint and separate offer groups

All offers Joint offers Separate offers p-valueResponded incorrectly to

survey question “did you buy the crop insurance?”

29.9% 24.7% 36.2% 0.122

Don’t remember premium charged 70.1% 64.7% 76.8% 0.104

Incorrect about covered events 68.8% 69.4% 68.1% 0.864

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Loanapplicants receivingboth the jointand separateoffers showed limited recall of thedetailswhensurveyedoverthephone.Table8summarizestheaccuracyofrespondents’surveyresponsesonproductinformationinthejointandseparateoffergroups.

Overall,nearly70percentofclientsdidnotrecallthepremium charged for the insurance28 and a similar proportion made errors in describing the coveredevents.Thedifferencesinrecallofproductinformationbetweenthetwogroupsarenotstatisticallysignificant,either when analyzed with t-test (as shown in Table 5.5) or in a regression framework.29 The averages, however, suggest that people who were assignedto the separateoffergroupmayhave recalled lessthan those receiving the joint offer. Becauseclientswere randomly assigned into the two groups, anydifferences in recall at the time of the survey should reflectdifferencesininitialunderstanding(ratherthandifferences in the amount of information forgotten between the offer and the survey). This runs contrary to ourhypothesisthatthejointoffer,throughdistractionand“informationoverload”associatedwiththeloanprocess, might result in clients understanding andretaining less information, and suggests that bundling theofferofseveralfinancialproductsmayexploitamomentofattentiontoaspecificactivity,inthiscase,theircropinvestment.30

28. Itislikelythatmanyoftheremaining30percentofrespondents,whogavesomecostinresponsetothisquestion,didnotrecalltheexactprice(thoughthepriceofferedcouldnotbeverifiedforthosewhochosenottopurchase).

29. Includingstandarderrorsclusteredatthebranchlevel.30. Clientswhoreceivedinsuranceinajointoffermayalsohavebeenmorelikelytoberemindedoftheinsurance

bypromotionalmaterialsattheCrezcamosbranchwhentheyvisitedforloandisbursementshortlyaftertheloanapplication.Separateofferclientsalsowouldhavebeenexposedtothesamematerials,butbeforetheirinsuranceoffer when it was likely less salient to them. Those clients may or may not have revisited the branch between the insurance offer and the survey.

Crezcamos borrower shows his coffee seedlings to researchers.


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Salesofagricultural insurance to low-income farmersareconstrainedby lowconsumerdemand,partlyinfluencedbyproducts thatwerepoorlydesigned,unaffordable,or sold ineffectively.Ourstudy revealssomeof the factors influencingconsumer choiceandbehavior tobetter understand theopportunitiesandconstraintstopurchasesofcropinsurance,particularlyastheyrelatetotheloanapplicationprocess.Incontrastwithourinitialhypothesis,wedonotfindanyoverallimpactontake-uporunderstandingfromunbundling the insurance offer from the loan process; Section 6.1 reviews the possible limitations andimplicationsof thisfinding.Whilemanyagricultural insuranceprogramsstruggle to reachevenmiddlinglevelsoftake-up,ourresearchsuggeststhatabundledcropinsuranceproductforlow-incomefarmerscanhavecomparativelyhighoveralltakeupifitisvoluntary,affordable,perceivedbyfarmerstoberelevanttotheirneeds,andwell-understood.InSection6.2,wediscusstheimplicationsofeachofthesefeaturesinlightofourstudyfindings.Regardlessofhowtheproductisdeliveredandexplained,recallislikelytobelowafteronlyashorttime;thissuggestsanimportantroleforremindersandotherongoingsupport,whichwediscussinSection6.3.Finally,weidentifyinSection6.4implicationsfromthisstudyforprogramsconsideringthebundlingofothertypesoffinancialproductsandservices.

6.1. Distraction and cognitive load did not affect take-up, understanding, or recallWe testedwhetherdistractionandcognitive loadduring the loanprocessplayeda role indecreasingtake-uporunderstandingofthecropinsuranceproductbyrandomlyassigningsomeclientstoreceiveanunbundledofferataseparatetimeaftertheirloanwasapprovedordenied.Contrarytoourhypothesis,however,separatingtheinsuranceofferfromtheloanapplicationprocessdidnotincreasetake-upoftheproduct,nordiditimproveclients’understandingorrecallofpurchasedecisions.Ourqualitativeresearchsuggests that distraction was not a relevant influence for Crezcamos clients during either the joint orseparateoffer.Evenwhentheinsurancewasofferedduringthesamevisitastheloan,itwasperceivedasadistinctstage,aftertheloanpaperworkhadbeencompleted.Theuniquecontextinwhichthisproductwasoffered(i.e.,inaquietspotattheclient’shome,withlimitedtimepressure)mayhavecontributedtothelimitedimportanceofdistraction.Inanothercontext,suchasacrowdedmarketplace,distractionmayplayafargreaterrole;addinganewproductofferinthatcontextcouldleadtoinformationoverloadanddifferenttake-upandunderstandingresultsthanaseparatedofferinthesamecontext.

Wealsohypothesizedthatsomeclients(particularlythosereceivingthejointoffer)mightfeelsomepressuretopurchaseinsuranceevenifitwasexplainedtothemasvoluntary,forexample,iftheythoughttheinsurancepurchasemightinfluencetheirloanapproval.Overall,wedonotfindstrongevidenceofanysuchpressure,although there is some suggestion that more vulnerable clients or those who were more worried about their loanbeingdeniedmighthavefeltsomepressure.Inanothercontext,withloanapplicantswhohavelessexperienceborrowingand/orfeweravailablelenderstochoosefrom,theinfluenceofpressureduringabundled offer might be much greater.

6.2. Drivers of client purchases

Voluntary

Theapproachtoofferingcropinsuranceadoptedinthisstudywassuccessfulinmakingclients’purchasedecisions truly voluntary. Thismayhave reducedoverall take-upbutcontributed toclients’good initialunderstandingoftheproduct.Thisapproachrequiredashiftinthinkingforloanofficersandotherstaff.Itreliesoninformingandconvincingclientsoftheinsuranceproduct’svalue,ratherthanpressuringorinsisting.Fromaconsumer’sperspective,atrulyvoluntaryoffer,combinedwithsufficientinformation,grantsthemautonomytomakechoicesaboutthefinancialservicestheyuse.Thisautonomycanempowercustomers

6. Conclusion

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inrelationtotheirfinancialserviceprovidersbyconveyingthemessagethattheycanbetrustedtomakegooddecisionsontheirownbehalf.Whetherornottheypurchasedthecropinsuranceproduct,Crezcamosclientswhohadbeenoffereditappreciatedtheofferandtheloanofficer’srespectfortheirdecision.

While the shift to voluntary sales is likely to decrease sales (and commissions) in the short term, it may lead tomedium-termcommercialgains for thefinancial serviceprovider.Crezcamos loanofficersperceivedthisshiftpositively.Makinganewproduct,whichother lendersdonothave,availabletocustomershascreatedanopportunityforCrezcamostodifferentiateitsproductofferinginacompetitivemarket.Offeringthatproductvoluntarilyratherthanobligatingorpressuringclientshascreatedanewopportunitytobuildandstrengthencustomerrelationshipsanddifferentiateitscustomerservicefromthatofother lenders. Italsoprotectedthecompetitivetermsoftheir loanproduct,whichwasnotautomaticallyburdenedwithadditionalcostsoftheinsuranceforthosewhodidnotwantit.Finally,whenloanofficersoffervoluntaryproductstheymustconvinceclientsoftheirvalue,ratherthanrelyingonobligationonpressuretomakethesale;thismayultimatelyincreaseclients’satisfactionwiththebundledproduct.

Relevant

Perceptions of the product shared during qualitative interviews were generally positive, even amongnonpurchasers,whooftenthoughtthattheproductcouldhelpsomepeopleorthattheymightpurchaseitinthefuture.Respondentswithfavorableopinionsciteditsaccessiblepriceandtheimportanceofthecoveredrisk.Complaintsabouttheproductcenteredontherisksandeventsitdoesnotcover,includingprice(market)risk,plagues,lowyields,andtheriskofillnessordisabilitythatmightrestrictfarmersfromwork.Theyalsoconsideredthatrespondentshadaccesstoandusedothertoolstomitigateclimaterisks.Thebroadrangeofrisks,andofavailabletoolstomitigaterisk,speaktotheimportanceofofferingcoveragethatisrelevanttoinsuredpopulations.

At23percent,take-upofthecropinsurancecomparesfavorablytosimilarproductsinothercontextsbutleavesmanyCrezcamosclientswithnoinsurancecoverage.Amongthosewhoboughttheproduct,thelevelsboughtwerequitelow—onaverageaquarterofthecoverageallowed.Pricesensitivity,perceivedlimitationsof theproduct,and thenoveltyof the insuranceproductmayallhavecontributed to theselowlevelsofcoverage.WhileCrezcamosborrowershaveexperiencewithothertypesofinsurance,cropinsuranceisanewandcomplexconceptforthem.Experiencewiththeproductandhearingaboutclaimsthatarepaidmaybuildtrust,leadingtogreatertake-upratesandhigherlevelsofcoverageovertime.

Crezcamosstaffviewthelowlevelofcoveragethatclientspurchasedasinadequatetomeettheirneeds.However, some clients may disagree. Insurance is only one tool of many that these farmers can use to managetheriskstheyface.Itcoversimportant(andgrowing)weatherrisks,butdoesnotaddresstheirotherrisks.Moreover,especiallyinthecaseofpermanentcrops,thecropinsurancecoversonlyextremeevents.Tocopewiththeremainingrisk,farmersturntoincomediversification,commonlygrowingarangeoftransitoryandpermanentcrops,raisinglivestock,and/orworkingoutsidethefarm.TheregionofColombiainwhichourstudytookplaceisuniquelywell-suitedtosupportthistypeofdiversification.Farmersalsochoosecrops,inputs,andtechnicalstrategiestomitigaterisk.Giventheirkeenawarenessoftheriskstheyface,aswellasthemanytoolstheyalreadyusetomitigatethatrisk,itmaynotbesurprisingthatsomefarmers,evenwhileviewinginsuranceasuseful,choosetopurchaseonlyasmallamountofcoverage.Thetrulyvoluntaryinsuranceofferleavesfarmersfreetomakethispurchasedecisioninlightoftheirownunderstandingoftheirrisks and the tools available to mitigate them.


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Affordable

Costwasan important factor in customers’ purchasedecisions,which suggest a highdegreeof pricesensitivitythatisconsistentwithpriorstudiesofinsurancedemand.Lowertake-upofthe(moreexpensive)insurancefor transitorycrops isonereflectionof this,asarethe low levelsofcoveragethatmostclientspurchased.Costwasparticularlyrelevantforthosewithsmallerfarmsandloansizes,whoboughtsmalleramounts of coverage (both in absolute size and in relation to themaximumamount they could havepurchased)thanotherborrowers.Assmaller,lower-incomefarmersmaybemorepricesensitivethanothers,it may be useful to engage in a segmentation strategy that targets the smallest farms and/or loan sizes withaparticularlysmallandaffordablecropinsuranceoption.Anecdotally,bothclientsandloanofficerspointedtotheimportanceofthegovernmentsubsidyinmakingtheproductaffordable.Thisisconsistentwithprior studiesofagricultural insurance,whichfindhigher take-up inprogramswith subsidies (HillandRobles2010;Coleetal.2013).

Understood

By using both quantitative surveys and qualitative interviews, our study was able to gain insight into both clients’initialunderstandingoftheproductandtheirlaterrecallofproductdetails.Overall,theinformationdeliveredtoclientsthroughthestandardizedsalesprotocol(particularlythevideo)wasconsideredusefulbybothloanofficersandclientsindeliveringinformationaboutahighlycomplexproducteffectively.Thesetoolsconveyedsomeofthemostcriticalelementsoftheproductthatenabledclientstomakeavoluntaryandinformedpurchasedecision.Ourqualitativeinterviewsrevealedthatwhentheprotocolwasapplied,clientsunderstoodthebasicfeaturesofthecropinsurancequitewell:theeventscovered,thedeductibleportionthatwouldnotbecovered,thegovernmentsubsidy,theprocessforenrolling,andthatanassessmentwouldtakeplaceinthecaseofaninsuredevent.Ourstudysuggeststhatunderstandingcanbetackledwithappropriateandinformativesalestools,andthatevenfarmerswithlowlevelsofeducationandknowledgeofinsurancecanunderstandthemainfeaturesofarelativelycomplexproduct.Theseinformationaltools(video,worksheet,“keypoints,”andguidedanswerstocommonclientquestions),coupledwithastrongawareness thataproduct is voluntary,appeared toeffectivelymotivate farmers tomakean informedchoiceas towhether topurchasecrop insurance.Our studyalsopoints to important issuesaround theprotectionof low-incomeconsumers.Specifically,when farmers felt lessempowered,eitherbecauseoftheirlackofcertaintyabouttheoutcomeoftheirloanprocess,orbecauseofotherdynamics,theymayhavefeltsubtlepressuretopurchasetheinsurance.Insuchcases,havingappropriatetraining,policies,andcontrolsinplaceattheinstitutionallevelcanhelptoreinforcetheemphasisonvoluntarysalesbyfrontlinestaff.

6.3. Low recall suggests a need for ongoing supportWhile clients understood the product’s main features in the moment it was explained to them, thisunderstandingdidnottranslateintolastingrecall,evenamongthosewhopurchasedtheproduct.Somecustomersfailedeventorememberwhethertheypurchasedtheproduct,andamajorityfailedtorecallthe amount and events covered correctly. This information is essential to use the insurance effectively. Whenclientsdonotrememberhavingapolicy,theywillnotmakeaclaimunlessreminded.Whenclientsarenotfamiliarwiththeclaimsprocess,theymaynotknowhowtoinitiateaclaimormayhaveunrealisticexpectationsaboutapayoutthatisdue.Whenclientshaveincorrectexpectationsofapayout,theymaybedisappointedtolaterreceiveamuchloweramount.Andwhenclientsdonotremembertheinsurancepolicy’stermorknowhowtorenew,theymayunintentionallyexperiencealapseincoverage.

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Lackofrecallmayalsodiminishtheproduct’svalueinanotherway:oneofthemainsourcesofvaluethatagriculturalinsuranceisintendedtopromotecomesthroughincentivizingfarmerstomakemoreprofitableinvestmentsintheircrops.Whenfarmersdonotremembertheinsurancecoveragetheyhavepurchased,itisunlikelytotranslatetothesepositiveincentives.

Theslightlybetterrecallbyclientswhowereofferedtheinsurancejointlywiththeirloansuggeststhateffortstomaketheproductmorerelevant,forexample,bysellingitatatimewhenclientsarefocusedontheircropinvestmentplans,mayhelpclientstoretainmoreinformation.However,eveninthisgrouprecallofnecessaryinformationwasverylow,suggestingthatongoingpost-salessupportisneededandthatremindersofcoveragemaybeuseful.Understanding themostappropriatecontentandchannel for reminders iscritical.Theyshouldbedesignedcarefullyandimplementedjudiciously.ToofrequentorindiscriminateSMSorphoneremindersmaynotbeappreciatedormayconfuseclients.Ruralclientsareoftennotneartheirphones,andoftendon’thavecellphonesignalsforhoursatatime.Remindersthatarebothcontextuallyappropriateanddeliveredatappropriatetimesaremostlikelytobeappreciatedanduseful.Feedbackfrom Crezcamos staff suggests that reminders will be well-received only if they are targeted, individualized, andextremelysalient(e.g.,ifcombinedwiththeforecastforanupcomingweathereventornewsaboutarecentpayoutontheinsurancepolicy).Loanofficersandbranchstaffmayalsoplayaroleinremindingclientsofcoveragewhentheymaybeeligibletomakeaclaimortorenewbeforetheirpolicyexpires.

6.4. Implications for financial service providers bundling other products and servicesOurstudyhypothesizedthattheremightbeimportantpitfallsandconstraintsassociatedwithbundlingcropinsurance,intermsofclientunderstandingand/orpurchasedecisions.Bycontrast,ourfindingssuggestthatbundlingmay,insomecontexts,createvaluableopportunitiesratherthanconstraints.Fromthesupplyside,itreducesthecostofdelivery,whichisparticularlyimportantinruralareaswhereloanofficerstravellargedistancestovisitclients.Fromthedemandside,ratherthanimpedingcomprehension,ourstudysupportsa cautious suggestion that selling insurance at a time when farmers are thinking about their investments in theircrops(duringtheloanapplication)mayhelpincreasetheperceivedrelevanceoftheproductandlead to greater understanding and recall.

Weconsidertheinsightsfromthisstudyintotheopportunitiesandpitfallsofbundlingfinancialproductsandservices for low-incomeclientsbeyondthespecificcontextofCrezcamosand itscrop insurance.Manyfinancial serviceproviders indevelopingcountrieshavedevelopedcross-sellingandbundlingstrategiesaimed at offering clients a more diverse and relevant set of services, and increasing the marginal gain from costly service delivery. Credit clients might be offered savings accounts, debit cards, or insurance services.Remittanceclientsareoffereddepositaccountsorinsurance.Borrowersareoftenprovidedwithnonfinancialservicessuchashealtheducationandbusinessservices.Ourstudyshowsthatbundlingdoesnotnecessarilyreducetherelevanceorunderstandingof“secondary”services,normustitplaceexcessivepressureonclients’cognitiveload.Wefindthatclientscanpayattentionandunderstandtheiroptionseveninabundledoffer,makinginformedchoices.Standardizingthetoolsavailabletoloanofficerstoexplainand sell productscanhelpensure that the informationoffered is completeandconsistent,particularlywhenloanofficersthemselvesmayfeelpressuretoexplainaservicethattheyarenotyetconfidentabout.

Thegreatestpitfall to the saleofa relevantandaffordable secondaryproduct,whetheroffered jointlywitha“lead”productorseparately,appearstobelowrecallofproductdetails(assumingtheproductisotherwiserelevant,affordable,andunderstood).Cropinsurance,inparticular,isacomplexproductwithmultiplesalientcharacteristics:thecoveredevent,damagerequired,coveredcrops,deductible,premium,benefitamount,claimsprocess,etc.Clientsareunlikelytorememberallofthesedetailsforverylong.Thisisnotnecessarilyaproblem,becausetheyarenotcalledontodosointheirdailylife.However,therewillbemomentswhere remembering the salientcharacteristicsofa secondaryproduct iscrucial. Forcropinsurance,damagefromweathereventswilltriggerthisneed.Greatersimplicityinproductdesigncanhelp

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toensurethatclientsrememberthepertinentdetails.Thiswouldinvolvetrade-offs,however,giventhattheproduct’scomplexityiscloselytiedtoitsattempttocoverabroadrangeofproductswithlargedifferencesinprobabilityofdamageduetoweatherevents.Anarrowerproductforthethreemainpermanentcrops(coffee,cocoa,andcitrus),mightbesimplerbutcouldalsoexcludesomefarmerswhodonotgrowthesecrops.

However,evenwith simplerproducts, recall shouldnotbeassumedto follow from initialunderstanding,butratherencouragedthroughoutthelifetimeofacustomer’sengagementwiththeprovider.InthecaseofCrezcamos,themicrofinanceinstitutionofferingtheinsuranceisthepartybest-suitedtoprovidethesereminders.It isatrustedinstitutionthathasanongoingrelationshipwiththeclientinconnectionwiththe“lead”creditproduct.Clientsareawareofthephysical locationofbranchesandhaveregularcontactwiththeirloanofficers,aswellastheabilitytocontactthemwhenaneedarises.Thedeliverychannelisthuswell-positionedtobearesourceforclientswhoneedremindersofthecropinsurance.

ThecaseofCrezcamossuggeststhattheresponsibilitytoprotectconsumersinlow-incomesettingsmightfall disproportionally on the distribution channel. In an ideal setting, consumers, distribution channels,insurers,andregulatorswouldallsharetheresponsibilityofensuringthatconsumershavetheinformationandsupporttheyneed.However, inpractice,theallocationofresponsibilitymaynotbeequal.31 In rural Colombia,ourstudyfoundthatconsumersgenerallyunderstoodbutdidnotrememberimportantdetailsofcropinsurancetheypurchased.Theinsurancecompanyislocatedinthecapital,far(inbothdistanceandculture)fromthefarmsofitsendclients,andisnotpreparedorwell-suitedtocommunicatedirectlywiththem.Atthesametime,regulationgenerallyemphasizesthedisclosureofinformationatthetimeofsale,ratherthanpost-salessupport.Thisecosystemleavesthedistributionchannelwiththeburdenofprovidingongoingsupport,whichisnotmandatedbutneededinpracticetoprotecttheconsumer.Microfinanceinstitutionsandotherdistributionchannelsclosetoclientsmaybewell-suitedtobearthisresponsibility,butmay not always have the tools. In the case of Crezcamos, shifting into a voluntary insurance offer may have beenafirststepinensuringclientunderstandingandawarenessoftheirpurchasedecision.However,thelackofrecallfoundinourstudysuggeststhatthismaynotbesufficienttoensurethatconsumersarefullyprotected.Intheimmediateterm,thedeliverychannelislikelybestsuitedtoprovidethesupportnecessarytofillthisgapthroughpost-salesupport.Overtime,effortstofurtherempowerclientsbothtomakesounddecisionsandtoseekinformationwhenneededwouldbenefitclientsandtheinstitutionsservingthem.

31. Zimmerman et al. (2014) discusses the allocation of responsibilities for consumer protection in microinsuranceamongconsumers,insurers,deliverychannels,andotherstakeholders.Theauthorssuggestthatresponsibilitiesbeallocatedinaccordancewithstakeholders’capacities,withaviewtoincreasingthecapacityofallstakeholders(andinparticularofconsumersthemselves)toimproveconsumerprotectionoutcomesovertime.

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