IZA DP No. 5060

David de Meza, Bernd Irlenbusch, Diane Reyniers:

Disclosure, Trust and Persuasion in Insurance Markets

Abstract:
This high-stakes experiment investigates the effect on buyers of mandatory disclosures concerning an insurance policy's value for money (the claims ratio) and the seller's commission. These information disclosures have virtually no effect despite most buyers claiming to value such information. Instead, our data reveal that whether the subject is generally trusting plays an important role. Trust is clearly associated with greater willingness to pay for insurance. Unlike in previous work, trust in our setting is not about obligations being fulfilled. The contract is complete, simple and the possibility of breach is negligible. However, as for much B2C insurance marketing, face-to-face selling plays a crucial role in our experimental design. Trusting buyers are more suggestible, so take advice more readily and buy more insurance, although they are no more risk averse than the uninsured. Moreover, trusting buyers feel less pressured by sellers, and are more confident in their decisions which suggests that they are easier to persuade. Therefore, in markets where persuasion is important, public policy designed to increase consumer information is likely to be ineffective.

http://ftp.iza.org/dp5060.pdf

WIthin personal financial planning over the last 10 years or so the FSA has fixated on process and not quality. The process has included providing far more written information to a client than before via Initial Disclosure Documents which focuses on price and Key Features documentation which focuses on technical info. To date the FSA has in my opinion done nothing that concentrates on the quality of advice. Begs the question, is that because the FSA doesn't see quality of advice as being important? Pity it has taken the FSA such a long time to realise that simply throwing lots of information at a client isn't the way to do it as the above research shows. The FSA has come to the end of the road, here's hoping Hector Sants isn't allowed to continue their nonsensical ethos over at the BoE.