Miscounselling in the German Insurance Market—Utility-Orientated Implications for the Meaning of Miscounselling

Abstract

Miscounselling results from the fact that consumers have difficulty matching their needs and preferences with the characteristics of the products and have to rely upon an intermediary. The ideal contract can be found by applying the theory of the consumer by Lancaster and, thus, using different amounts of the contract characteristics. Using a spatial representation of the contractual alternatives yields a model framework. The main question is how to differentiate between advice that improves the consumers’ situation and those that are wrong in order to define an accuracy level for the liability rule imposed by the Insurance Contract Act. After identifying the relevant variables via case studies, it is possible to state a general definition of miscounselling: miscounselling can be defined as the provision of any additional information that does not help to reduce the utility loss referring to an initial situation. Considering this definition, one can think about rewording the current liability rule.