Investment guarantees in unit-linked life insurance from the customer perspective

Interest rate guarantees are a typical contract feature in unit-linked-life insurance products. As the financial crisis of 2007/2008 has shown, these guarantees can be of substantial value for policyholders since they ensure that at least a minimum amount will be paid back even if the mutual fund value falls below a specific guaranteed level. However, from the insurance company's view, these guarantees can be costly—especially in highly volatile markets—due to the required risk management measures which must be undertaken to secure the guarantees promised to the customers. Thus, the aim of this paper is to investigate whether customers really value these guarantees and if their willingness to pay (WTP) is sufficient to cover the guarantee costs. To elicit customer WTP, we use an online questionnaire and compare these results to the actual guarantee costs calculated with the Black and Scholes option pricing formula. One main finding is that even though most of the participants in the online questionnaire work in the financial industry, subjective prices are difficult to derive and are lower, on average, than the prices obtained using a financial pricing model. However, many participants are still willing to pay a substantially higher pric

Price presentation and consumers' choice

Currently, regulatory authorities and consumers ask for more cost transparency with respect to financial product components. In life insurance, for instance, the premium for products should be split in its components: A premium for death benefits, the savings premium, the cost of an investment guarantee, and the administration costs. In this regard, it is important for insurance companies and regulators to know to what extent the way of presenting the prices of an offer affects consumer evaluation of the product. Based on a paper by Huber et al. (How do price presentation effects influence consumer choice? The case of life insurance products. Working paper, 2011) as presented at the annual meeting of Deutscher Verein für Versicherungswissenschaft in 2011, this article presents the effects of different forms of presenting the price of life insurance contract components and especially of investment guarantees on consumer evaluation of this product. This is done by means of an experimental study using a representative panel for Switzerland and by focusing on unit-linked life insurance products. The findings reveal that, contrary to consumer products, there is no effect of price bundling and price optic on consumer evaluation and purchase intention for life insurance products. However, there is a significant moderating effect of consumer experience with insurance products on this relationshi

A new US polar research vessel for the twenty-first century

Author Posting. © The Oceanography Society, 2012. This article is posted here by permission of The Oceanography Society for personal use, not for redistribution. The definitive version was published in Oceanography 25, no. 3 (2012): 204-207, doi:10.5670/oceanog.2012.96.Scientific and political interests at the poles are significant and rapidly increasing, driven in part by the effects of climate change and emerging geopolitical realities. The polar regions provide important services to global ecosystems and humankind, ranging from food and energy to freshwater and biodiversity. Yet the poles are experiencing changes at rates that far outpace the rest of the planet. Coastal Arctic communities are impacted by climate change through coastal erosion, sea level rise, ice loss, and altered marine food webs, threatening the future of their subsistence lifestyle. Climate change has dramatically increased the melt rate of ice sheets and glaciers at both poles and has the potential to significantly raise sea level worldwide. Oil and gas drilling as well as transportation in the Arctic have reached all-time high levels, in part because of reduced sea ice cover. Tourism is a growing industry at both poles, bringing more than 20,000 tourists each year to the western Antarctic Peninsula alone. The collateral effects of human activities include the potential for pollution of the marine environment, particularly through spills of hydrocarbons. Our ability to understand the effects of such activities and mishaps is limited, particularly in ice-covered areas during winter

Erkenntnisse aus der Verhaltensforschung für die Risikowahrnehmung und das Risikomanagement

Die ökonomische Verhaltensforschung zeigt, dass Verzerrungseffekte die Risikowahrnehmung und Entscheidungsfindung systematisch beeinflussen. Diese Effekte äussern sich in verzerrten Einschätzungen sowie in Über- respektive Unterreaktionen, die in Abweichung vom rationalen Verhalten des "Homo oeconomicus" stehen. Dieser Beitrag beleuchtet unter anderem Phänomene wie Übervertrauen in Modelle oder Kontrollillusion sowie deren Auswirkung auf die Risikowahrnehmung. Das Verständnis des individuellen und organisationalen Urteils- und Entscheidungsverhaltens ist ein wichtiger erster Schritt für das Risikomanagement von Unternehmen, um Verzerrungseffekte zu vermindern

On the Valuation of Investment Guarantees in Unit-linked Life Insurance: A Customer Perspective

Interest rate guarantees in unit-linked life insurance products ensure that at contract maturity, at least a minimum guaranteed amount is paid, even if the mutual fund falls below the guaranteed level. Strongly depending on the riskiness of the underlying mutual fund, these guarantees can be of substantial value. However, while insurer pricing is based on the replication of cash flows, customers are more likely to base their decisions on individual preferences. The aim of this paper is to contrast reservation prices for guarantees in unit-linked life insurance policies based on customers’ subjective willingness to pay with a financial pricing approach, an investigation that has not been undertaken to date. To do so, we use an online questionnaire survey and calculate reservation prices using option pricing theory. Our findings reveal that even though the majority of the participants in the online questionnaire are employed in the field of insurance, subjective prices are difficult to derive and are significantly lower on average than the prices obtained using a financial pricing model. However, a considerable portion of participants is still willing to pay a substantially higher price.

A New US Polar Research Vessel for the Twenty-First Century

Scientific and political interests at the poles are significant and rapidly increasing, driven in part by the effects of climate change and emerging geopolitical realities. The polar regions provide important services to global ecosystems and humankind, ranging from food and energy to freshwater and biodiversity. Yet the poles are experiencing changes at rates that far outpace the rest of the planet. Coastal Arctic communities are impacted by climate change through coastal erosion, sea level rise, ice loss, and altered marine food webs, threatening the future of their subsistence lifestyle. Climate change has dramatically increased the melt rate of ice sheets and glaciers at both poles and has the potential to significantly raise sea level worldwide. Oil and gas drilling as well as transportation in the Arctic have reached all-time high levels, in part because of reduced sea ice cover. Tourism is a growing industry at both poles, bringing more than 20,000 tourists each year to the western Antarctic Peninsula alone. The collateral effects of human activities include the potential for pollution of the marine environment, particularly through spills of hydrocarbons. Our ability to understand the effects of such activities and mishaps is limited, particularly in ice-covered areas during winter