Willingness to Pay for Insurance in Denmark

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dc.contributor.author	Hansen, Jan V.
dc.contributor.author	Højbjerg Jacobsen, Rasmus
dc.contributor.author	Lau, Morten I.
dc.date.accessioned	2012-10-08
dc.date.accessioned	2012-10-08T13:17:38Z
dc.date.available	2012-10-08T13:17:38Z
dc.date.issued	2012-10-08
dc.identifier.uri	http://hdl.handle.net/10398/8538
dc.description.abstract	We estimate the maximum amount that Danish households are willing to pay for three different types of insurance: auto, home and house insurance. We use a unique combination of claims data from the largest private insurance company in Denmark, measures of individual risk attitudes and discount rates from a field experiment with a representative sample of the adult Danish population, and information on household income and wealth from registers at Statistics Denmark. We assume that households maximize expected inter-temporal utility subject to an inter-temporal budget constraint with several possible states of nature, where all uncertainty is realized in the initial period and any loss incurred by an accident is subtracted from initial wealth. The estimated willingness to pay is based on annual claims and should thus be considered as an annual premium. Since there is some uncertainty about the estimates of risk attitudes and discount rates, there is some uncertainty about the estimated willingness to pay. We use a randomized factorial design in our sensitivity analysis where each simulation involves a random draw from independent normal distributions of the estimated risk and time preferences. The results show that the willingness to pay is marginally higher than the actuarial fair value under Expected Utility Theory. However, the estimated willingness to pay is significantly higher under Rank-Dependent Utility Theory, and for some households it may be up to 600% higher than the actuarial value of the insurance claims.	en_US
dc.format.extent	37	en_US
dc.language	eng	en_US
dc.publisher	Durham Business School	en_US
dc.relation.ispartofseries	Working papers;WP2012-02
dc.title	Willingness to Pay for Insurance in Denmark	en_US
dc.type	wp	en_US
dc.accessionstatus	modt12okt08 lbjl	en_US
dc.contributor.corporation	Copenhagen Business School. CBS	en_US
dc.contributor.department	Økonomisk Institut	en_US
dc.contributor.departmentshort	ECON	en_US
dc.contributor.departmentuk	Department of Economics	en_US
dc.contributor.departmentukshort	ECON	en_US
dc.publisher.city	Durham	en_US
dc.publisher.year	2012	en_US