How Do Price Presentation Effects Influence Consumer Choice? The Case of Life Insurance Products

Abstract

An attractive life insurance product design becomes increasingly important due to demographic change and a declining confidence in state-run pension schemes. Most life insurance contracts are often offered with investment guarantees embedded in the savings part of the product. In addition, regulatory authorities and consumers currently ask for more cost transparency with respect to product components (e.g., risk premium for death benefits, savings premium, cost of investment guarantee) including administration costs. In this regard, it is important for insurance companies and regulators to know to what extent the way of presenting the prices of an offer affects consumer choice. The aim of this paper is to measure the effects of different forms of presenting the price of life insurance contract components and especially of investment guarantees on consumer evaluation of this product. This is done by means of an experimental study and by focusing on unit-linked life insurance products. Our findings reveal that contrary to, for example, consumer products, there is no effect of price bundling and price optic on consumer evaluation and purchase intention for life insurance products. However, there is a significant moderating effect of consumer experience and price perception on this relationship.