Behavioral Biases and Strategies of Insurance Market Players.

Summary This thesis aims at explaining interactions among economic agents operating in the retail insurance market. On the one hand, the policyholder is willing to be covered against a risk. To do so, they have to explore the insurance market to purchase a contract in line with their risk perception. On the other hand, insurers compete in a regulated market which imposes capital constraints for shock loss absorption purposes. In between, intermediaries may provide services in order to facilitate interaction between risk-adverse consumers and risk-taker firms. In this context, we analyze economic behaviors of insurance actors through different perspectives. Chapter 1 and 2 both result from original laboratory experiments, conducted through a web-interface especially designed for these studies. Results in Chapter 3 rely on a theoretical model and numerical simulations. Chapter 1 emphasizes on the relationship between honesty and beliefs about honesty of economic agents. According to laboratory results, we show how the uncertainty and the perception of advantageous conditions impact the level of honesty and beliefs about honesty. In general, consumers estimate that intermediaries are more honest than they really are, hence supporting their physical presence in the insurance market. However, intermediary financial incentives are a source of distortion of honesty beliefs: the weaker the level of the incentive, the stronger the deviation anticipations. In Chapter 2, we shed light on the dilemma faced by insurance purchasers under a multichannel distribution. Should the consumer, themselves, choose from a large set of insurance policies, or rather delegate a part of their decision to a more or less honest intermediary? Using experimental approaches, including exogenous search costs, we show that obfuscation and beliefs about intermediary honesty are the main determinants of individual choices. We also find that obfuscation and intermediaries’ deviation are the main sources of inefficiency in decision-making, especially regarding the features of the insurance contracts chosen by consumers. Our identification of the focal point effect supports the importance of the price level on purchasing decisions rather than the risk environment or the coverage level. The introduction of search costs in the exploration process, as well as the heterogeneity of beliefs about honesty, justify multichannel distribution strategies adopted by insurers. An analysis of insurer price competition with a repeated one-period non-cooperative game is conducted in Chapter 3, where both insurer losses and consumer behaviors are stochastic. Because of regulatory obligations, we consider a solvency constraint when computing Nash-Equilibrium. We determine the sensitivity of the premium equilibrium with respect to the parameters, especially when firms do not benefit from same competitive advantages (i.e. reputation effect leading to differences in consumers inertia or market seniority leading to differences in capital stock). We also study insurers’ market share in response to the entry of new insurer undercutting prices but dealing with binding solvency constraints.