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Behavioural Insights in Insurance

This note takes an alternative view from the conventional wisdom of expected utility and optimum deductible in insurance. It highlights explanations for insurance purchase and use decisions through behavioural economics.

It is a widely held belief amongst experts and industry players that, “Insurance is never bought, it is always sold”. Though, numerous research studies on insurance have focused on preference and willingness of consumers, the anomaly of demand and apathy of users remain one of the greatest mysteries of the financial world. This note takes an alternative view from the conventional wisdom of expected utility and optimum deductible in insurance to analyse user preference. Instead the note highlights explanations for insurance purchase and use decisions through concepts of behavioural economics. The note argues that use of these concepts along with thorough understanding of business dynamics of the insurance industry can alone lead to effective user centric designs in insurance and microinsurance.

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