Privacy Concerns, Economic Benefits, and Consumer Decisions: A Multi-Period Panel Study of Consumer Choices in the Automobile Insurance Industry

49 Pages Posted: 16 Aug 2021

See all articles by Miremad Soleymanian

Miremad Soleymanian

Simon Fraser University (SFU) - Beedie School of Business

Charles Weinberg

University of British Columbia (UBC)

Ting Zhu

Purdue University - Krannert School of Management

Date Written: August 13, 2021

Abstract

To examine the relationship between privacy concerns and consumer choices, we develop a finite time-horizon dynamic structural model to study consumers’ adoption and use of Usage-Based Insurance (UBI). UBI enables auto insurers to collect individual-level driving data, provide feedback on driving performance, and offer individually targeted prices. Using detailed information on insurance premiums, adoption, retention decisions, and driving behavior (as measured by sensor data), we estimate the costs of using UBI including the privacy cost. During our study, the company (along with most competitors) announced an enhancement to privacy protection (limiting usage of location-based data); subsequently, there was a widely reported external data breach at a major, unrelated retailer. Our main empirical results indicate that (1) both initial and ongoing costs play crucial roles in customers’ adoption and dropout decisions; (2) the enhancement in privacy policy reduces the adoption cost and is associated with higher UBI adoption; and (3) despite being an external event, the major data breach is associated with a decrease in retention rates among customers currently being monitored. Sensitivity to these events varies by gender. These results are consistent with the view that consumers trade-off privacy costs for economic benefits.

Keywords: privacy, data breach, usage-based insurance, dynamic structural model

Suggested Citation

Soleymanian, Miremad and Weinberg, Charles and Zhu, Ting, Privacy Concerns, Economic Benefits, and Consumer Decisions: A Multi-Period Panel Study of Consumer Choices in the Automobile Insurance Industry (August 13, 2021). Available at SSRN: https://ssrn.com/abstract=3905034 or http://dx.doi.org/10.2139/ssrn.3905034

Miremad Soleymanian (Contact Author)

Simon Fraser University (SFU) - Beedie School of Business ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Charles Weinberg

University of British Columbia (UBC) ( email )

2329 West Mall
Vancouver, British Columbia BC V6T 1Z4
Canada

Ting Zhu

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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