The Effect of Information Disclosure on Demand for High‐Load Insurance

Economists, regulators, and consumer protection agencies have highlighted the welfare losses for consumers who purchase high‐load insurance against modest stakes risks. Mandatory information disclosure is a potentially attractive public policy tool that might improve consumers' choices, but has not been widely tested in insurance settings. We conduct an incentive‐compatible insurance demand experiment, in which we manipulate the information disclosed to subjects. We test whether any of the three most commonly suggested disclosures affect insurance demand, disclosing either (1) the true probability of loss, (2) the contract's expected loss, or (3) the insurer's profit on the transaction. Similar to consumers in naturally occurring insurance markets, subjects in the laboratory demonstrate significant demand for high‐load insurance against modest stakes. However, we find no effect of any of the three disclosure treatments on subjects' insurance choices. We discuss the implications of our results for possible public policy initiatives in insurance markets.