On Consumer Preferences and the Willingness to Pay for Term Life Insurance

Item Type	Journal paper
Abstract	We run a choice-based conjoint analysis for term life insurance with a sample of 2,017 German consumers, for which data has been collected through web-based experiments. Individual-level part-worth utility profiles are estimated by means of a hierarchical Bayes model. Drawing on the elicited preference structures, we then compute relative attribute importances and different willingness to pay measures. In addition, we present comprehensive simulation results for a realistic competitive setting that allows us to assess market expansion as well as product switching effects. Brand, critical illness cover, and medical underwriting turn out to be the most important nonprice product attributes. Hence, if a policy comprises the favored specifications of those, customers are prepared to accept substantial markups in the monthly premium. Furthermore, preferences vary considerably across the sample, implying that product differentiation is well-suited to avoid price pressure and grow market shares. Yet, we also document a large fraction of individuals that exhibit no willingness to pay for term life insurance at all, presumably due to the absence of a need for mortality risk coverage. Finally, based on estimated demand sensitivities and a set of cost assumptions, it is shown that insurers require an in-depth understanding of preferences to identify the profit-maximizing price.
Authors	Braun, Alexander; Schmeiser, Hato & Schreiber, Florian
Projects	Braun, Alexander; Schmeiser, Hato & Schreiber, Florian (2013) Consumer Preferences for Term Life Insurance [applied research project]
Journal or Publication Title	European Journal of Operational Research
Language	English
Keywords	Willingness to Pay, Preferences, Term Life Insurance, Choice-Based Conjoint Analysis
Subjects	business studies
HSG Classification	contribution to scientific community
HSG Profile Area	None
Refereed	Yes
Date	16 September 2016
Publisher	Elsevier
Place of Publication	Amsterdam
Volume	253
Number	3
Page Range	761-776
ISSN	0377-2217
ISSN-Digital	1872-6860
Publisher DOI	https://doi.org/10.1016/j.ejor.2016.02.023
Depositing User	Prof. Dr. Alexander Braun
Date Deposited	28 Apr 2014 19:00
Last Modified	25 Mar 2023 01:23
URI:	https://www.alexandria.unisg.ch/publications/231298

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Braun, Alexander; Schmeiser, Hato & Schreiber, Florian (2016) On Consumer Preferences and the Willingness to Pay for Term Life Insurance. European Journal of Operational Research, 253 (3). 761-776. ISSN 0377-2217

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https://www.alexandria.unisg.ch/id/eprint/231298

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