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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