This paper examines the role of financial advisors in promoting annuity literacy in the U.S. and the moderating effect of financial knowledge on this relation-ship. Using a 2023 survey dataset from a large U.S. insurance company and employing propensity score matching, the findings show low overall annuity literacy but a positive association between financial advisor use and annuity literacy. The study further identifies financial knowledge as a moderating factor in this relationship, while also highlighting the potential for diminishing returns from financial knowledge when a financial advisor is involved. These findings highlight the importance of financial advice and knowledge in understanding annuity products. The paper also offers recommendations for financial advisors to work with clients of varying financial knowledge levels effectively. [Key words: annuities; annuity literacy; financial knowl-edge; financial literacy; financial advice.]
Standard economic theory interprets insurance as a means for risk-averse individuals to transfer risk. I show that another important function of insurance is to optimally finance indivisible expenses that only have value in particular states of nature. This function is of relevance to the understanding of many insurance markets. I show that a general model nests both the classic consumption-smoothing value and the access value of insurance in addition to a novel finding that I term the consumption-promotion value of insurance. Contrary to traditional predictions on insurance de-mand, insurance in this setting can be a normal good. In addition, the existence of beneficial moral hazard is not restricted to the case of unaffordable expenses but constitutes a general feature of insurance. Finally, the marginal-utility gap between states can be uninformative about the value of insurance.
We utilize an incentive-compatible experiment to examine the robustness of demographic, behavioral, and psychological effects on insurance purchases across three different insurance frames: a neutral frame, a pandemic life insurance frame, and a non-pandemic life insurance frame. We find that the effects of these individual characteristics on insurance purchases vary depending on the framing of the decision task while holding constant other parameter values (e.g., loss probability, loss amount). Thus, our results suggest that researchers should take caution when inter-preting demographic effects depending on the insurance context. Furthermore, our results suggest that different framings or contexts may be a possible explanation for the previously observed mixed findings on demographic effects. As our experiment took place during the COVID-19 pandemic, we also examine factors that influenced decisions at this time. We find that psychological factors such as the reported level of worry and the perceived chance of dying from COVID-19 are correlated with increased insurance purchases.
Prior research suggests that the Small Business Administration disaster loan program (SBADLP) disadvantages low socio-economic status (SES) and minority groups. However, those same groups are least likely to have pre-existing disaster insurance, so should be more likely to report losses and receive approvals. The analysis here uses county-level data for 2003-2019 on disaster losses and loan approvals, various objective factors, and SES and race/ethnicity. A method used to study wage discrimination is applied, with reported losses and loan approvals predicted by objective factors in first-stage regressions, and the residuals regressed against SES and race/ethnicity variables. To account for non-linearities, quartile loss subsamples are analyzed. The first-stage regressions find various objective factors playing distinct roles across the loss quartiles. Given collinearity, the residuals regression results are discounted in favor of simple correlations, which link low SES and losses as well as approvals, consistent with high SES types having insurance, with mixed results for racial/ethnic minorities. However, for the least severe storms, low SES is negatively associated with reported losses, and approvals are negatively related to African Americans, Asian Americans, and Hispanics, suggesting that improvements in the training of (largely temporary) SBA employees working at disaster sites are warranted.
We analyze whether an insurance firm's organizational form affects the degree of earnings quality in the German property-liability insurance industry. Using a dataset of 1,856 firm-year observations for the years 2001-2021 and regression analyses, we examine the "demand" hypothesis versus the "opportunistic behavior" hypothesis to identify differences in the earnings quality of mutual and stock insurance firms. Our results indicate that, consistent with the opportunistic behavior hypothesis, mutual insurance firms show higher levels of earnings quality. The results hold for various measures of earnings quality and are not affected by macroeconomic condi-tions. Our findings are important for various stakeholders of insurance firms as they provide knowledge on the determinants of earnings quality, which supports improved consumer product decisions.
