Study on consumers' decision-making in insurance services: A behavioural economics perspective

Insurance plays an important role for European economies and for consumers alike, as it allows managing risk and protecting financial stability.

This study focused on consumers’ decision-making in the non-life insurance market when purchasing domestically and cross-border. It tested ways to help consumers make better decisions, and collected complementary data on the supply side of the market, building on other evidence such as the Final Report of the Commission Expert Group on European Insurance Contract Law[1]. Its design was developed in close cooperation with EIOPA[2].

Key conclusions:

  • Behavioural biases as well as time and effort needed to compare alternatives prevent consumers from getting the best deals. Personal advice and comparison tools can be effective remedies, but advice needs to be objective and unbiased and comparison websites should be independent and comprehensive, allow for complex comparisons and show costs clearly.
  • Sub-optimal decision-making patterns are prevalent, but consumers make better decisions when they are allowed to pause and reflect and to modify their insurance choices throughout the purchasing process.
  • Consumers' highest overpayment in the behavioural experiment and survey resulted from selecting an excess that was too low, rather than selecting an overpriced insurer or insuring an unnecessary risk. On average, this decision-making error amounted to €44 across all respondents for home contents and €48 for comprehensive motor insurance, equivalent to 19% and 11%, respectively, of the average premium paid.
  • The limited availability of information and data relevant to consumers in some countries hamper policy measures to improve their decision-making.

The study found latent cross-border demand for insurance products. However, consumers' low awareness of the possibility to purchase cross-border; their limited confidence due to perceived complexity of completing a cross-border purchase; as well as concerns about the potential difficulty of solving problems that may occur with the insurance provider limit insurance purchase cross-border.

The conclusions and policy recommendations help the Commission to gain a better understanding of consumer behaviour in the context of the Consumer Financial Services Action Plan[3], namely actions 3 and 4 which aim at improving transparency and making it easier to change financial services providers or products. 


[1] Final Report of the Commission Expert Group on European Insurance Contract Law (2014). Available at http://ec.europa.eu/justice/contract/files/expert_groups/insurance/final_report.pdf

[2] European Insurance and Occupational Pensions Authority

[3] COM(2017) 139 final, COMMUNICATION of 23 March 2017 Consumer Financial Services Action Plan: Better Products, More Choice. Available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52017DC013