Considering recent changes in the financial and banking industry, a necessity of introduction of

new financial products emerged. A field experiment was conducted in a rural region in India,
offering a new and innovative product related to rainfall insurance to a sample of farmers. So the
paper evaluates the effect of offering new services, such as financial awareness training, and
three marketing treatments, using a randomized controlled trial, by aiming to test whether
improved education and marketing can positively impact the sales of rainfall insurance.

So after the initial introduction of rainfall insurance service, a sample of 600 households was
selected from 15 coastal villages in one of the states in India. 40 households from each village
were chosen, and additional details about sample selection will be provided a bit later. Out of
this, 300 randomly selected households were offered a financial literacy program consisting of
two three-hour sessions. Just for side information, financial literacy is a person’s understanding
and ability to make financial decisions. Separate from this, randomly selected farmers were
offered additional advantages, such as an opportunity of getting a full refund or weather forecasts
about the next periods.
The initial hypothesis, which the experiment is or is not supposed to support, is that The
educational program is important, and according to benchmark estimates, increased
financial awareness increases demand for insurance products. The first market treatment
MoneyBack had the highest and statistically significant impact on sales, by increasing it by
6.9%, while the other treatment groups had small and statistically insignificant impact on the
demand.
–Although the usage of such services would provide significant benefit to its users, there were
several assumptions regarding the factors stopping people from its usage. One of the basis for the
concern was the fact that about 90% of farmers, or 9 out of 10 households reported that variation
in local rainfall is the most important risk they face. And although there are some strategies that
might mitigate those risks, such as crop diversification, frequently fail because of weather
conditions, which again leads to the awareness of benefits of rainfall insurance. The study was
based on the assumption that while rainfall insurance would benefit farmers significantly,
however, considering the fact that such people are mainly uneducated, because of such lack of
awareness of true pros and cons of similar insurance services, they avoid it. Particularly,
farmers may have an opinion that the insurance companies will take an advantage of their
lack of awareness and make profits on that, and also risk averse farmers tend to believe
that if the season is successful and there are no weather shocks, the money paid for
insurance would be an inappropriate waste of resources.

**Sample selection and demo info**

So the main area of interest of the sample was agriculture related to growth of cotton or
groundnut. So the farmers were chosen based on their agricultural activities, and the farm size
they owned. Furthermore, two-thirds of the sample consisted of marginal, small and
semimedium farms, with average land size of less than 4 hectares. Such households were under
the highest risk of having significantly reduced crops, in case of severe weather shocks.
So the experiment started in summer, which was the main agricultural season, with trial
interventions, trying to assess the existing conditions of the sample. According to the collected
information, the respondents were mainly males, with an average age of 50 years and
annual agricultural income of approximately USD1800. An interesting figure was the
literacy rate, according to which 37% completed only primary schooling, 41% lower
secondary schooling and only 7% graduated from high school.

The next step was the evaluation of financial literacy of the sample. The authors used several
sources for their surveys to have a true view of the respondents' education. It was also essential
to adapt the survey to the emerging market context, to have unbiased data. And it should be
noted that the evaluation was done before any marketing or educational intervention was done, to
see the raw conditions of the sample. So the survey was divided into 4 parts, one of them
evaluated the general understanding of financial concepts, such as interest rate, compounding
and risk diversification. The second one was related to debt literacy, aiming to test if the
respondents realize the accelerating impact of compounding interest on the total debt
accumulation. The third and fourth parts were related to the basic mathematical questions. Such
survey design would help to not only assess the financial literacy, but also the general knowledge
of respondents. The survey results showed high scores for math, meaning that the questions and
the survey in general was taken seriously, and very low scores on the financial literacy questions
reflect the actual low level of financial literacy among the respondents.
**Financial education intervention**
So the next step was launching financial literacy programs to enhance the educational level of
respondents. The educational sessions were completed before the marketing of insurance
products. There were two three-hour sessions, half of which was dedicated to general personal
lessons on personal finance management, savings, credit management, and also included
instructions about the relevance of rainfall insurance. The second half of the session was
dedicated to interactive simulation games, aiming to deliver the system of insurance
mechanisms. Due to such interactive games, participants had first-hand experience of the
benefits and limitations of insurance, and due to those activities, farmers were able to understand
the power of insurance in protecting households and their farms from unfavorable weather
shocks. The second game helped to clarify the frequency and severity of natural disasters and the
pros and cons of crop and rainfall insurance mechanisms. After those sessions, farmers gave
positive feedback on the effectiveness of classes, by mentioning that learning-by-doing was
very effective for them, as it made clear about the probability of unfavorable weather conditions,
the risks and tradeoffs related to having or not having crop insurance.
The next step was designing and introduction of marketing interventions.

** Marketing interventions**
As marketing treatments are another essential part in demand acceleration, the effectiveness of
marketing visits on household purchase behavior. Based on the collected sample, each household
assigned to the marketing treatment received one or more of three different marketing messages.
So there were 3 main treatment messages. The first group was named MoneyBack, offering a full
refund guarantee for the insurance, if the policy will not work as promised, second treatment
offered weather forecasts about the weather quality of the upcoming period, and the last one
offered demonstration of the relationship between millimeters of rainfall and soil moisture
(mmDemo).

1) So the first, MoneyBack policy, as already was mentioned, was offering a full refund of
the insurance premium at its expiration date, which was about in 4 months, if the policy
fails to provide any payout. The main purpose of such an offer was to attract even more
attention from potential customers, although it was not a beneficial offer for insurance
 companies. Considering that persuasion of the high quality of a newly introduced product
is not easy, such a money back strategy would show the vendors’ confidence in its
product quality. Secondly, risk averse farmers would be secured from throwing away
their money, if the policy does not provide any payout.

2) The second message was millimeter demonstration, offering a demonstration of how the
payout trigger functions. Few clients are familiar with the metric system. Additionally,
farmers' perception of weather is in terms of soil moisture, not millimeters of rainfall.
The NGO representative provided visual aids to demonstrate the millimeter triggers. It is
assumed that demonstrations increase new product acceptance because they enable
consumers to learn about product benefits before purchase. So because the
demonstration reduces consumers’ uncertainty about benefits of the weather insurance,
such treatment is assumed to have a positive impact on the product demand.
3) FORECAST CHKARECA GREM ES INCH ER -_-

Design and Analysis

Three hundred people have formed the sample.
Half of them were invited to the financial literacy education program, and 282 people were
randomly selected to receive marketing visits. There had been 6 combinations of messages that
these people were supposed to receive. They were MoneyBack, Forecast, mmDemo, MoneyBack
& Forecast, mmDemo & Forecast, mmDemo & Forecast & MoneyBack. So, in other words,
each message was received by 47 people. As the main goal is observing the effect of the
financial literacy program, two separate groupings of the sample had also been done: 'no
marketing and financial education' and 'no marketing and no financial education'.
The division of people, between those who get an invite to the educational program
and those who don't, have been done individually. So there is not so much difference
among cognitive abilities, risk aversion, or years of schooling of these people. The same
variables have been estimated for samples of marketing messages. Ցույց ենք տալիս
սեղանները
All of the people who were supposed to get a marketing visit and a message got that. However,
not all people who got an invite to the educational program attended. Though the attendance rate
was pretty high, nearly 75%. In addition 10% of people who didn’t get an invite to the program
attended.
Regression framework instead of variance analysis was chosen because of the following reasons.
1) Cost effectiveness of interventions should be analyzed, which includes also reporting of
effect magnitude, relevant coefficients and stds.
2) The impact of the educational program on purchase decision should also be analyzed
owing to the instrumental variables, as the attendance to the program was not
compulsory.
3) Finally, as we do not have equal sample sizes among cells it is much easier to apply a
regression framework. Linear probability model is used as it is easier to estimate the
instrumental variables owing to it.
Another table which you can see on the slide indicates an interesting facts about the correlation
between the characteristics of people and their decision to buy insurance. As obvious as it may
seem people who have better financial literacy, higher housing values and are older are more
likely to buy insurance policies.

Results