Beyond Affordability: Behavioural Barriers to Uptake of Inclusive Insurance

Author: Sam Mendelson, e-MFP.

On March 12th, e-MFP was pleased to launch the European Microfinance Award (EMA) 2025 on ‘Building Resilience through Inclusive Insurance’. This is the 16th edition of the Award, which was launched in 2005 by the Luxembourg Ministry of Foreign and European Affairs, Defence, Development Cooperation and Foreign Trade, and which is jointly organised by the Ministry, e-MFP, and the Inclusive Finance Network Luxembourg (InFiNe.lu), in cooperation with the European Investment Bank. This year, e-MFP is also delighted to welcome as a strategic partner our friends at Microinsurance Network (MiN).

In this 4th piece in a series of blogs that we’ll be running throughout the year on this topic, e-MFP’s own Sam Mendelson explains the mental models that make insurance such a hard ‘sell’, and what behavioural insights teach us about how to increase access and uptake. 

Insurance, at its core, is a promise. A promise that when things go wrong - when your house floods, your crops fail, your health collapses – someone, somewhere, has got your back. For low-income and vulnerable populations, who often live closest to those risks, the value proposition should be crystal clear.

So why is insurance so hard to sell to the very people who need it most? Despite decades of innovation, inclusive insurance has yet to reach its transformative potential. Even where products are affordable, available, and well-designed, uptake remains puzzlingly low among low-income populations. Why?

It’s not just a distribution problem. It’s a perception problem. It’s behavioural, emotional, and based on internal logic in ways that traditional economics - with its focus on rational actors – can fail to capture. Understanding the low uptake of insurance products among vulnerable groups requires diving into psychology, culture, and people’s lived experience.

The answer lies not only in supply-side or economic constraints, but in the complex and in reality irrational ways that people perceive risk, weigh decisions, and engage with unfamiliar financial tools. This blog explores the behavioural and perceptual barriers to inclusive insurance - and what can be done about them.

The Limits of the ‘3 As’

Traditionally, poor uptake has been attributed to the classic trio: Affordability, Accessibility, and Awareness. These remain critical. But programmes that addressed all three have still faced lacklustre enrolment. A growing body of evidence suggests something deeper is at play.

Inclusive insurance is, at its core, a behavioural product. It asks people to give up scarce resources now in exchange for uncertain future benefits. Understanding the psychology behind that decision is crucial to closing the protection gap.

Five Behavioural Barriers to Uptake

1.   Present Bias: ‘Why Pay Now for a Maybe Later?’

People - especially those living in conditions of scarcity - tend to overvalue immediate needs and undervalue distant ones. This cognitive bias - present bias - makes insurance a tough sell: paying premiums today doesn’t satisfy an immediate need, and the benefit may never materialise.

A CGAP study in Kenya on mobile health insurance found that uptake increased when premiums were automatically deducted in small amounts - effectively bypassing the friction of daily trade-off decisions and making enrolment feel painless.

2.   Trust and the ‘Payout Illusion’

Many people simply don’t believe that insurers will pay when the time comes. This isn’t unfounded: opaque terms, complex exclusions, and poor claims experiences have eroded trust. In some contexts, there's a widespread perception that insurance is a scam or a trap - the ‘perceptual contagion effect’. In India, studies from the ILO’s Impact Insurance Facility have shown that even rumours of denied claims in neighbouring areas can supress uptake in pilot schemes.

3.   Complexity and ‘Cognitive Load’

Insurance is conceptually difficult - especially when layered onto already-complex lives lived in conditions of high cognitive stress. Poor households are often juggling dozens of survival decisions daily. In that context, unfamiliar financial products demanding mental energy are likely to be ignored. The World Bank’s Mind, Society and Behavior Report emphasises how scarcity taxes the brain, reducing bandwidth for long-term planning or abstract risk-mitigation.

4.   Mental Models of Risk

In many settings, people don’t think of risk in probabilistic terms. Instead, they may frame risk through a fatalistic lens (“If it’s going to happen, it will happen”) or rely on community support systems. These mental models shape how people perceive the usefulness of insurance. A 2023 study in Ghana found that uptake increased when insurance was bundled with community-based saving schemes—essentially grafting the unfamiliar onto a familiar and trusted model.

5.   Loss Aversion: ‘If I Don’t Claim, I Lose’

Behavioural economics shows that people feel the pain of loss more acutely than the pleasure of gain. Insurance premiums, especially if no claim is made, feel like money wasted. This is loss aversion at work—and it makes insurance seem like a bad deal. Interestingly, when schemes reframed premiums as contributions to a mutual support fund, uptake improved – as was the case in several cooperative schemes supported by the ILO’s Inclusive Insurance Initiative. 

Breaking down behavioural barriers

So what can be done?

1.  Design for behaviour, not just economics. Product design must start from how people actually think. This includes incorporation of behavioural design principles, such as simplifying choices, pre-selecting beneficial defaults, and breaking costs into bite-sized contributions.

2.   Trust is built through experience—especially when it comes to claims. Claims processes must be fast, fair, and human-centred. Word-of-mouth is a powerful force, and a single good claim experience can unlock local markets. Conversely, a single denial (however justified) can poison the well. Claim visibility, such as letting communities witness payouts, can dramatically improve trust and future enrolment.

3.   Use trusted channels and familiar offerings. People are more likely to engage when insurance is distributed through trusted community leaders, farmer cooperatives, or savings groups. Packaging insurance as part of a familiar offering, like credit, farm inputs, or healthcare, makes it feel less alien.

4.   Bundling is a powerful behavioural tool. This is especially true when it removes the need for a separate, deliberate decision to enrol.

5.   Communicate for comprehension, not compliance. Insurance jargon can sometimes seem defiantly opaque. Simple, visual, and narrative-based communication is vastly more effective. Testimonials, stories, and analogies resonate more than actuarial tables. Programmes using interactive tools, such as role-playing or radio dramas, have found significant improvements in understanding and uptake.

If inclusive insurance is to meet its potential, the sector must stop designing for that most elusive of characters – the ‘rational economic agent’ – and start designing for real people. That means:

• Respecting the psychological context of poverty;

• Building trust through action, not promises;

• Communicating clearly and empathetically; and

• Embedding products into people’s lives, not asking them to step outside their reality to adopt them.

  
  

In the end, the problem isn’t just that insurance doesn’t reach the poor; It’s that too often it doesn’t resonate – and so arguments around affordability and premiums-to-payout ratios will often not do the trick. Behavioural insights can help bridge that gap; not by manipulating people into buying insurance, but by making the purchase of suitable insurance a behaviour that is virtually second nature.

About the Author:

Sam Mendelson is Financial Inclusion Specialist at e-MFP, part of the European Microfinance Award design and evaluation team, and the lead author of the Financial Inclusion Compass. A long time ago, his first degree was in Psychology.