By Paul Buse, President of Big I Advantage^®

Recently, I was distracted by an article "How Individuals Purchase Insurance: Going Beyond Expected Utility Theory." My father was an economist so I figured, "I can read this stuff!" Plus, it wasn't that long, so I jumped in. What I took away is surprisingly practical:

Tip #1: If you sell insurance to people who really like what they are insuring, they are more willing to buy more coverage. (For example, ask me to insure my carbon bike.)
Tip #2: People who purchase optional increased limits on one policy are more likely to do the same on other policies. (I bought UM/UIM on my umbrella, I'm a likely big life insurance and disability customer.)
Tip #3: After a big loss event people are more likely to buy insurance for that sort of loss event. (Flood in my area, I'm very likely to buy a voluntary flood policy.)

Extra Credit: Those of you that like academics-based thinking may be interested a second paper "The Affection Effect In Insurance Decisions." It gets into the logic and proof behind the above conclusions and if you are the curious sort, well I recommend it. Don't be put off by the use of the word Affection…just read it as "The Emotion Effect in Insurance Decisions." As student of insurance, you should know insurance is very much at the cross-roads of the battle between traditional economists and their 100% rational homo economicus and behavioral economists and their Dilbert cartoons.

 

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Source: A.M. Best Aggregates and Averages IEE and Underwriting and Investment Exhibit