Financial Consumer Protection via the Online Disclosure of Insurance Complaints

Abstract

Using proprietary data from a nationwide life insurance group and local governments' staggered implementation of the online disclosure of complaints about insurance companies in China, we conduct an event study that examines how consumers and insurance companies respond to the complaint information disclosure. The findings reveal that insurance companies that receive (no) complaints in the first online release are penalized (temporarily rewarded) by consumers' subsequently purchasing less (more) in insurance. These effects are primarily driven by more information-sensitive consumers who are younger than 50 years old or who have higher earnings. In addition, insurance companies respond to the initiation of online complaint disclosure by paying out more money in claims settlements. However, more information-sensitive consumers are the main recipients of the increased leniency in claims administration, which suggests that insurance companies' strategic response takes into account the heterogeneity in consumer reactions. Overall, these results offer insight into how the public disclosure of consumer complaints can affect both consumers and financial service providers in transactions that involve complex financial products; our findings also intervene in the debate over whether regulators should make complaint information publicly available.

Keywords: Stigma, Complaints, Public disclosure, Consumer protection, Insurance, Strategic JEL codes: G52, D82