The Effect of Information Disclosure on Demand for High-Load Insurance
The Journal of Risk and Insurance, Forthcoming
Posted: 11 Jan 2019 Last revised: 29 Feb 2020
Date Written: January 9, 2019
Economists, regulators, and consumer protection agencies have highlighted the welfare losses for consumers who purchase high-load insurance against modest stakes risks. Mandatory information disclosure is a potentially attractive public policy tool that might improve consumers' choices, but has not been widely tested in insurance settings. We conduct an incentive-compatible insurance demand experiment in which we manipulate the information disclosed to subjects. We test whether any of the three most commonly suggested disclosures affect insurance demand, disclosing either (1) the true probability of loss, (2) the contract's expected loss, or (3) the insurer's profit on the transaction. Similar to consumers in naturally-occurring insurance markets, subjects in the laboratory demonstrate significant demand for high-load insurance against modest stakes. However, we find no effect of any of the three disclosure treatments on subjects' insurance choices. We discuss the implications of our results for possible public policy initiatives in insurance markets.
Keywords: Insurance Demand, Decision-Making Under Risk and Uncertainty, Disclosure, Financial Advice
JEL Classification: D12, D14, D81, D82, G22
Suggested Citation: Suggested Citation