WORKING PAPER sponsored agricultural (area yield) insurance in India was only 11.6 percent among small and marginal 3 farmers, who were eligible for a 40 percent premium subsidy. 2.2. Drivers of demand for insurance The drivers of demand for agricultural and other insurance among low-income households are complex and varied. McCord, Magnoni, and Zimmerman (2012) and Eling, Pradhan, and Schmit (2014) reviewed the literature on demand factors. Some of the most relevant determinants of demand relate to characteristics of the product, cost, and information, specifically the following: • Salience of the covered risk • Appropriate product features • Adequate coverage • Price • Liquidity constraints • Experience with insurance • Financial literacy • Understanding of the product offered • Decisions and recommendations of peers • Trust in the insurer and/or distributor Dalal and Morduch (2010) discussed the psychological factors that can limit demand for microinsurance, drawing from behavioral economics to suggest (among others) the following strategies to increase take- up: • Avoid overwhelming customers with too many choices. • Appeal to individuals’ fear of loss, rather than advertising the benefits of insurance. • Make the risk and the insurance product salient. • Undermine potential customers’ overconfidence regarding the covered events. • Eliminate obstacles to purchase. 2.3. Costs and benefits of bundling financial products Wuebker, Baumgarten, Schmidt-Gallas, and Koderisch (2008) noted that effective bundling can offer convenient, “one-stop-shop” options at a reduced cost due to savings in delivery. Yet bundling alone may not solve difficulties in selling products with low demand. The authors also cautioned that while effective bundling strategies in financial services can lead to increased sales in both lead and additional products, including too many “filler products” in a bundle with a “lead” product might backfire, causing clients to abandon the package and move to a “lead-only” solution. In the case of microfinance, this would represent a loss, as a client’s unbundled alternative would likely be taking a loan from a competing institution or avoiding borrowing altogether. Banerjee, Duflo, and Hornbeck (2014) found that a large fraction of borrowers (16 percentage points) were willing to give up a microfinance loan to avoid purchasing a mandatory bundled health insurance product, and the majority of those clients lost access to microfinance altogether. Similarly, Giné and Yang (2009) found in a study of a mandatory bundled index-based weather insurance policy, priced at actuarially fair rates, that take-up of the loan was lower by 13 percentage points among farmers offered insurance with the loan. The insurance product forgave the loan in the event of poor rainfall, and the authors suggest that farmers are already implicitly insured due to the limited liability inherent in the loan contract, and as a result did not see value in the insurance product. By contrast, a bank 3. The authors suggest that low demand is due to limitations in product design and liquidity constraints. 4