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

See all articles by Marc A. Ragin

Marc A. Ragin

University of Georgia - Department of Insurance, Legal Studies, Real Estate; University of Georgia

Johannes Gerd Jaspersen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Benjamin Collier

Temple University - Risk Management & Insurance & Actuarial Science

Date Written: January 9, 2019

Abstract

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

Ragin, Marc A. and Jaspersen, Johannes Gerd and Collier, Benjamin, The Effect of Information Disclosure on Demand for High-Load Insurance (January 9, 2019). The Journal of Risk and Insurance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3312891 or http://dx.doi.org/10.2139/ssrn.3312891

Marc A. Ragin (Contact Author)

University of Georgia - Department of Insurance, Legal Studies, Real Estate ( email )

Athens, GA 30602-6254
United States

University of Georgia ( email )

Athens, GA 30602-6254
United States

Johannes Gerd Jaspersen

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Schackstr. 4
Munich, DE 80539
Germany

Benjamin Collier

Temple University - Risk Management & Insurance & Actuarial Science ( email )

Fox School of Business and Management
1301 Cecil B. Moore Ave.
Philadelphia, PA 19122
United States

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