Emerging Insight: Using insurance as a nudge for timely tax payments
25 May 2015
A municipality in Peru wanted to incentivize more residents to pay their taxes in full, and on time. With Peruvian insurance company Protecta, it distributed a life insurance product alongside a discount card and an information campaign. The product and added benefits were provided free by the municipality but only to those who paid their local taxes in full and on time. The municipality hoped that this would provide an effective incentive, as well as providing important support to residents in case of a death in the family. It was therefore willing to fully cover the costs of the insurance.
The product was distributed for a year and an evaluation was carried out, with interesting results. The insurance product was an effective incentive to encourage those who were already paying their taxes to do so on time and in full. The municipality observed a reduction of approximately 20 per cent in late payments. However, the product did not work as an incentive for those who generally did not pay their local taxes at all, and no significant change was observed among this segment of residents.
It is encouraging to see how insurance can work as an effective incentive for behaviour change among at least some segments of a population. Though it wasn’t able to transform the behaviour of all residents, providing insurance nonetheless allowed the municipality to achieve its objective among a portion of its population, with positive effects for its tax collection.
Read more examples of successful public-private partnerships in our paper “Making public-private partnerships work in insurance”.
The product was distributed for a year and an evaluation was carried out, with interesting results. The insurance product was an effective incentive to encourage those who were already paying their taxes to do so on time and in full. The municipality observed a reduction of approximately 20 per cent in late payments. However, the product did not work as an incentive for those who generally did not pay their local taxes at all, and no significant change was observed among this segment of residents.
It is encouraging to see how insurance can work as an effective incentive for behaviour change among at least some segments of a population. Though it wasn’t able to transform the behaviour of all residents, providing insurance nonetheless allowed the municipality to achieve its objective among a portion of its population, with positive effects for its tax collection.
Read more examples of successful public-private partnerships in our paper “Making public-private partnerships work in insurance”.