Law and Economics Workshop: Protecting Consumers from Add-On Insurance Products: New Lessons for Insurance Regulation from Behavioral Economics
Monday, November 19, 2012 04:20 PM EST
-- 06:10 PM EST
JGH - Case Lounge
The Center for Law and Economic Studies' Guest speaker for today's Law and Economics Workshop will be Tom Baker, William Maul Measey Professor of Law and Health Sciences, University of Pennsylvania Law School, presenting "Protecting Consumers from Add-On Insurance Products: New Lessons for Insurance Regulation from Behavioral Economics," authored with Peter Siegelman.
Abstract: Informed observers of insurance markets have long marveled at the high prices charged for a wide variety of low value insurance products sold as "add-ons" to consumers buying other products and services. This article examines three examples of add-on insurance products - extended warranties for consumer products, loss damage waivers for rental cars, and credit life insurance. We develop a behavioral economic analysis of these products that helps explain why people buy them and, more importantly, why competition fails to reduce their prices to something approaching their cost. We discuss the implications of this analysis for insurance regulation, exploring four possible strategies: improved disclosure of the terms of add-on insurance products, a ban on the sale of the products as an add-on, price regulation, and the use of information technology to create a robust market at the point of sale. Drawing from recent U.K. experience, we recommend a mixed approach for the three specific products we examine: a ban on the sale of credit life insurance and extended warranties as add-on insurance products and a new, on-line market for car rental insurance that customers can access at the car rental desk. All are welcome