How Does Price Presentation Influence Consumer Choice? The Case of Life Insurance Products

Authors

  • Carin Huber,

  • Nadine Gatzert,

  • Hato Schmeiser

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    • Hato Schmeiser is Chair for Risk Management and Insurance Economics at the Institute of Insurance Economics, University of St. Gallen, Kirchlistrasse 2, 9010 St. Gallen, Switzerland. He can be contacted via e-mail: hato.schmeiser@unisg.ch. Nadine Gatzert is Chair for Insurance Economics and Risk Management, Friedrich-Alexander-University of Erlangen-Nürnberg, Lange Gasse 20, 90403 Nuremberg, Germany. Gatzert can be contacted via e-mail: nadine.gatzert@fau.de. Carin Huber is at Zurich Insurance Group, Mythenquai 2, 8022 Zurich, Switzerland. Huber can be contacted via e-mail: carin.huber@zurich.com. The views presented in this paper express the authors' personal opinion and do not necessarily reflect the view of Zurich. The authors would like to thank the anonymous referees for valuable comments and suggestions on an earlier version of the paper.

Abstract

Life insurance is an important product for many individuals, both to protect dependents against the premature death of an income producer and to provide savings in later retirement years. These kinds of products, however, can be quite complex. Regulatory authorities and consumers currently ask for more cost transparency with respect to product components (e.g., risk premium for death benefits, savings premium, cost of investment guarantee) and administration costs. The aim of this article is to measure the effects of different forms of presenting the price of life insurance contract components and especially of embedded investment guarantees on consumer evaluation of those products. The intention is to understand the extent to which price presentation affects consumer demand. This is done by means of an experimental study and by focusing on unit-linked life insurance products. Our findings reveal that contrary to other consumer products, there are no precise effects of “price bundling” and “price optic” on consumer evaluation and purchase intention in the case of life insurance. Consumer experience and price perception, however, yield a significant moderating effect.

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