FLORIAN KLEIN | Corporate Strategy Manager, Helvetia Insurance Group
HATO SCHMEISER | Professor of Insurance Economics and Risk Management, University of St. Gallen

An analysis of the empirical data acquired from an online survey reveals the key drivers for policyholders’ relative
willingness to pay against the background of high insured values. We apply the insurer’s perspective to better understand which policyholder groups exhibit a high relative willingness to pay and which do not even cover the insurer’s expected expenses. 

We find that the certainty effect underlies the probabilistic insurance, but not the underinsurance. This implies that insurance coverage does not have a relevant impact on the relative willingness to pay. Furthermore, the relative willingness to pay for high insured values decreases significantly with a higher default probability, older age, lower risk aversion, or lower wealth. 

In addition, the average relative willingness to pay for individuals with medium financial literacy is close to 1, but policyholders with the highest financial literacy pay substantially less (0.621). We also find that, for overinsurance and full coverage, policyholders significantly deviate from the results based on the Expected Utility Theory. This insight is independent of the initial wealth and the degree of risk aversion. Concerning underinsurance, the deviation is either less significant or not significant at all.