Alexander Braun
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Prof. Dr.
Last Name
Braun
First name
Alexander
Email
alexander.braun@unisg.ch
Phone
+41 71 224 3653

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Publication

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

2016-09-16 , Braun, Alexander , Schmeiser, Hato , Schreiber, Florian

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.

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Publication

Risikolebensversicherung in Deutschland: Was zählt wirklich für den Verbraucher?

2014 , Braun, Alexander , Schmeiser, Hato , Schreiber, Florian , Steinmann, Lukas

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Publication

Term Life Insurance in Germany: The Consumers' Perspective - A Need for Preferences-Orientated Product Design?

2014 , Braun, Alexander , Schmeiser, Hato , Schreiber, Florian , Steinmann, Lukas

People in many countries are under- or even uninsured against premature death. Germany, where the mortality protection gap is EUR 110 000 per working person with dependents, is no exception. Many Germans choose not to buy life products such as term insurance, despite it being very affordable. There is no simple explanation for this. A wide range of factors influence consumer behaviours. The good news is that these can be investigated. Indeed, insurers are well-positioned to extend the reach of their products and services across society at large with better understanding of their consumers. This study is a joint exercise by Swiss Re and the Institute for Insurance Economics (University of St. Gallen). It demonstrates a means by which insurers can develop greater appreciation of the factors behind buying decisions, such as the product features that create value for consumers, and how much people are willing to pay for term insurance, information that can help instruct the design of effective business strategy. The methodology used is choice-based conjoint (CBC) analysis. CBC is a state-of-the-art approach to understanding consumer preferences. It is the Analysis of consumers' stated preferences in a hypothetical market or decision-making environment. CBC has been used to good effect in other industries. This study is the first-ever application of CBC in the term life insurance context, the intent being to generate similarly valuable results. The study is part of the Swiss Re consumer research series. It is the coming together of academics and industry experts with in-depth knowledge of the German insurance sector to help our clients navigate the market.

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