On Consumer Preferences and the Willingness to Pay for Term Life Insurance
Journal
European Journal of Operational Research
ISSN
0377-2217
ISSN-Digital
1872-6860
Type
journal article
Date Issued
2016-09-16
Author(s)
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.
Funding(s)
Language
English
Keywords
Willingness to Pay
Preferences
Term Life Insurance
Choice-Based Conjoint Analysis
HSG Classification
contribution to scientific community
HSG Profile Area
None
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
253
Number
3
Start page
761
End page
776
Subject(s)
Division(s)
Eprints ID
231298