Choice in Insurance Markets: A Pigouvian Approach to Social Insurance Design

Should choice be offered in social insurance programs? This review presents a conceptual framework that identifies the key forces determining the social value of offering choice. We show that the value of offering choice is higher the larger the variation in individual valuations for extra insurance is, but it gets reduced by both selection on risk and selection on moral hazard. Besides adverse selection, the implementation of choice-based policies is further challenged by the presence of choice frictions or the obligation to offer basic uncompensated care. All these inefficiencies can be seen as externalities that do not rationalize the absence of providing choice per se but point to the need for regulatory policies and suggest the potential value of corrective pricing à la Pigou. Applying this framework to the existing evidence on these forces in the context of unemployment insurance, we find that offering insurance choice can be valuable even in the presence of significant adverse selection. We conclude by showing how this framework can constitute a fruitful guide for further empirical research in different insurance domains. Expected final online publication date for the Annual Review of Economics, Volume 13 is August 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Browsing versus Studying: A Pro-Market Case for Regulation

We identify a competition-policy-based argument for regulating the secondary features of complex or complexly-priced products when consumers have limited attention. Limited attention implies that consumers can only “study” a small number of complex products in full, while—by failing to check secondary features—they can superficially “browse” more. Interventions limiting ex-post consumer harm through safety regulations, caps on certain fees, or other methods induce consumers to do more or more meaningful browsing, enhancing competition. We show that for a pro-competitive effect to obtain, the regulation must apply to the secondary features, and not to the total price or value of the product. As an auxiliary positive prediction, we establish that because low-value consumers are often more likely to study—and therefore less likely to browse—than high-value consumers, the average price consumers pay can be increasing in the share of low-value consumers. We discuss applications of our insights to health-insurance choice, the European Union’s principle on unfair contract terms, food safety in developing countries, and the shopping behavior of (and prices paid by) low-income and high-income consumers.

Cultural Heritage and natural disasters: the insurance choice of the Italian Cathedrals

Given the threat of natural disasters to Cultural Heritage, this paper aims to investigate how the use of the insurance instrument contributes to the definition of an adequate risk management strategy. The analysis focuses on the role that insurance can play both by supplying policies covering damage and proactively stimulating prevention behaviors, taking into consideration information imperfections (i.e., adverse selection, moral hazard and charity hazard). Through a survey among Italian Dioceses, data about the diffusion of insurance contracts were collected together with other qualitative and quantitative elements linked to the decisional process of insuring Italian Cathedrals. The empirical analysis shows that the administrators of the Dioceses are aware of the economic value of the cultural assets and in safeguarding the Cathedrals they identify in the insurance system a useful and efficient risk management instrument.

A Study on Customer’s Preference for Personal Vehicle Insurance Provided by Different Insurance Companies in Bengaluru

The primary purpose of vehicle insurance is to cover the vehicle against damage, personal injury, and third-party liability. In addition to this, some insurance companies also provide value-added services such as roadside assistance and other services in return of the amount called as premium which attracts a large number of customers. However, our study shows that vehicle owners give maximum importance to the cost of insurance in terms of the annual premium. Primary data has been collected through questionnaire and analysed to ascertain about the factors responsible for taking out vehicle insurance, choice between private and public sector insurance companies, preferred insurance companies among the major players in the field, factors that play a role in the customers’ choice of a particular insurance company, customers’ opinion about the affordability of the premium to be paid, customers’ satisfaction with their chosen company, whether customers consider fast and efficient service as a deciding factor, and whether the brand value of the company plays a role in the customers’ choice.

A behavioral approach to personalizing public health

Behavioral policies are increasingly popular in a number of health care contexts. However, evidence of their effectiveness, specifically in low-income and highly disadvantaged populations, is limited. Some positive effects have been found for adaptive interventions, which merge more personalized approaches with advances in data collection and modern analytical methods. These approaches have only recently become feasible, as their implementation requires a confluence of large-scale datasets, contemporary machine learning, and validated behavioral insights. Such methods have considerable potential to improve outcomes without requiring substantial increases in effort on the part of individuals. Using examples from health insurance choice, clinical attendance rates, and prescription of medicines, we present an argument for how adaptive approaches, especially those considering disadvantaged populations explicitly, offer an opportunity to generate equity in public health.