Abstract
Kahneman/Tversky 1979 introduced the notion of so-called probabilistic insurance contracts. These are insurance policies involving a small probability that the consumer is not reimbursed because of a possible default of the insurance company. Extending the study of Wakker/Thaler/Tversky 1997, the present study contains an experimental analysis of the willingness of potential policyholders to pay for probabilistic insurance in dependency on the rating of the insurance company. It can be shown that people dislike probabilistic insurance and demand a substantial reduction in the premium to compensate for default risk. This reduction is rising with the default risk of the company. In addition, the results show a new phenomenon. The more an insurance company is threatened by default risk the less people are willing to accept contracts of this company at all. Finally the paper discusses implications for the control of insurance companies.
Volume
89
Page
339-355
Number
2/3
Year
2000
Keywords
Default Risk, Willingness-to-Pay, Probabilistic Insurance
Categories
Behavioral Insurance
Publications
Zeitschrift für die gesamte Versicherungswissenschaft
