A colleague commented recently on an interesting article by Andrew Steen titled "What are Commercial Insurance Clients Buying - a Policy or a Response?". As a commercial insurance brokerage we deal with this situation every day, which is why I understand the disconnection between product offerings and purchasing habits. Truthfully positive claim responses are an expected outcome of an insurance transaction for most consumers, therefore it is usually only those who have been impacted negative by a claims situation who really appreciate an insurers capabilities to respond in the event of a claim.
Insurance is a competitive market in which a commodity exchanged is not fully known to one of the parties. A great paper by authors Michael Rothschild and Joseph Stinglitz (Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information) helps explain this issue, which can justify the purchasing habits of consumers. The article suggests in theory we can determine the purchasing habits for insurance by calculating the utility demand.
Utility Theorem: Determining the demand for insurance
V(p,W1, W2) = (1-P) U (W1) = pU(w2)
What most buyers don't consider are the intricacies of an insurance policy. Since there are so many terms and conditions to an insurance transaction, buyers often rely on imperfect information to make purchasing decisions on their insurance.
"Terms and conditions is to commercial insurance what campaign promises is to leadership races; in either case, the right questions before the deal is done may prevent a lot of grief after the commitment" - Derrick Coyle
Working with an insurance broker is definitely the best alternative when it comes to an insurance transaction. Brokers are trained to understand several insurance policies and make recommendations based on multiple factors important to the consumer.
 Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information
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