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Law versus Economics? How should insurance intermediaries influence the insurance demand decision

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  • Annika Pape

    (Leuphana University Lueneburg, Germany)

Abstract

How should intermediaries influence the insurance demand decision? The answer must refer to the interdependence of economic determinants and legal duties. Intermediaries potentially guide demand decisions by delivering objective information and by considering individuals’ situation and economic circumstances. The economic theory provides determinants that are essential for the insurance demand decision. Undoubtedly, consumers lack information about certain variables, and therefore misjudge their demand for insurances. In response to the consumer, an intermediaries’ task is to discover possible misjudgments and to provide the correct information. Since the information in the insurance market is asymmetrically distributed, an insurance agent has an incentive to behave opportunistically, a tendency that is reinforced by the remuneration scheme in Germany. In 2007/2008, insurance intermediaries became regulated by law. That law states, among other things, the four basic obligations of insurance intermediaries and a liability rule to sanction violations. In order to interpret and substantiate the legal terms, those have to match the relevant economic determinants to state the ideal behavior of an intermediary.

Suggested Citation

  • Annika Pape, 2013. "Law versus Economics? How should insurance intermediaries influence the insurance demand decision," Working Paper Series in Economics 299, University of Lüneburg, Institute of Economics.
    • Handle: RePEc:lue:wpaper:299
    as

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    References listed on IDEAS

    as
    1. Wenan Fei & Harris Schlesinger, 2008. "Precautionary Insurance Demand With State‐Dependent Background Risk," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(1), pages 1-16, March.
    2. Shapira, Zur & Venezia, Itzhak, 2008. "On the preference for full-coverage policies: Why do people buy too much insurance?," Journal of Economic Psychology, Elsevier, vol. 29(5), pages 747-761, November.
    3. Doherty, Neil A & Schlesinger, Harris, 1983. "Optimal Insurance in Incomplete Markets," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 1045-1054, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    insurance; insurance intermediation; advice; liability; Insurance Contract Act;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • K29 - Law and Economics - - Regulation and Business Law - - - Other
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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