Skip to main content Accessibility help
×
Home
Hostname: page-component-56f9d74cfd-rpbls Total loading time: 0.315 Render date: 2022-06-25T15:20:43.741Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "useRatesEcommerce": false, "useNewApi": true }

7 - Demand Anomalies

Published online by Cambridge University Press:  05 February 2013

Howard C. Kunreuther
Affiliation:
University of Pennsylvania
Mark V. Pauly
Affiliation:
University of Pennsylvania
Stacey McMorrow
Affiliation:
The Urban Institute
Get access

Summary

This chapter discusses significant anomalies in the demand for insurance using the benchmark model of demand as a reference point. It then explains many (but not all) of these anomalies by invoking the theories of choice and behavior outlined in Chapter 6. The unexplained anomalies remain puzzles for the reader to reflect on. The chapter includes a discussion of several general demand-side anomalies followed by a detailed analysis of a few specific insurance markets likely to be affected by these anomalies. It is worth restating here the three broad types of demand-side anomalies explained in Chapter 3:

  • Inadequate demand at reasonable premiums (underpurchase);

  • Large demand at excessive premiums (overpurchase);

  • Purchasing the wrong amount or type of coverage.

SEVEN ANOMALIES

The following examples of anomalies can occur across a variety of insurance markets.

Failure to Protect against Low-Probability, High-Consequence Events

Many people fail to purchase protection against relatively rare but serious losses offered at market premiums unless they are required to do so by stipulations in lending agreements such as buying homeowners’ insurance as a condition for a mortgage. Although the probability of an individual incurring a loss is low, the pool of individuals at risk for such events is large. For victims, the financial protection from insurance can make the difference between recovery of their normal pattern of consumption and deep and continuing difficulties.

Type
Chapter
Information
Insurance and Behavioral Economics
Improving Decisions in the Most Misunderstood Industry
, pp. 113 - 144
Publisher: Cambridge University Press
Print publication year: 2013

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Save book to Kindle

To save this book to your Kindle, first ensure coreplatform@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×