Risk Attitudes of Annuity-Prone Investors

Abstract

With the introduction of equity products by life insurance companies, investor attitudes will become increasingly important. This paper attempts to add to the theory of insurance consumption by analyzing such investor attitudes. data indicate that investors have substantially different attitudes toward various investment media. In the case of several media, the attitudes of annuity-prone and annuity-moderate investors are very similar. However, there are significant statistical differences between the groups in their attitudes toward five important types of investments. These data also show significant differences in attitudes towvard anti-inflationary portfolio policy. conclusions drawn from these data may be especially important in relation to the equity products of life insurance companies and there are implications for the more traditional life insurance products as well. There is considerable evidence that the life insurance-industry is on the threshold of a genuine marketing revolution. introduction of equity products appears to be the greatest departure from life insurance tradition since nonforfeiture values were incorporated into life insurance policies more than sixty years ago. Although the life insurance industry has been criticized by many for being slow to enter the equity product field, the industry is now moving rapidly. A recent report based on information gathered from 349 life insurance companies indicated that 74 companies are nowv selling mutual funds or variable annuities and 65 companies are David A. West, Ph.D., is Associate Professor of Finance at the University of Missouri-Columbia. He is author of Investor in a Changing Society (Prentice-Hall, Inc., 1968). Glenn L. Wood, Ph.D., is Associate Professor of Finance at the University of Missoui-iColumbia. authors are indebted to Dr. Alfred E. I-Iofflander, Graduate School of Busincss Administration, University of California at Los Angeles, for his helpful suggestions and criticisms, and to the School of Business and Public Administration, University of Missouri-Columbia for financial assistance. This paper was submitted in November, 1968. preparing to offer these products.' In addition, there is evidence that life insurance companies may broaden their financial services even more. Suggestions have been made that some life insurance companies in the future will offer virtually all the services now provided by commercial banks, small loan companies, and other financial institutions.2 If more were known about the reasons consumers purchase life insurance policies, it would be easier to analyze the trend toward broader financial services. Ideally, a complete theory of insurance consumption would make it possible to predict the chances of ultimate success for the attempts of life insurance companies to expand their product lines. Unfortunately, only a few fragments of a theory of insurance consumption now exist. An increasing number of insurance 1 Life Insurance Agency Management Association, Products and Services, Bulletin Number 66, October, 1968. 2 See, for example, Kenneth C. Foster, The Possibilities of Broadening the Financial Services of Life Insurance for Personal Investing, 1967 C.L.U. Forum Report, American Society of Chartered Life Underwriters, p. 24.