Probabilistic Insurance and the Insurance Purchase Behaviour

This study attempts to explore individuals' insurance purchasing behaviour and their attitude towards purchase of probabilistic insurance. Primary data collected from questionnaires with a sample of 123 university students in the UK were used to conduct the research. Empirical results revealed that the most influential element for consumers' decisions making on the choice of insurer is service quality. Claim service is a vital part of the insurance service, as consumers actually buy the commitment from their insurers. Probabilistic insurance is a topical issue in the insurance industry, as there is a possibility that insurance companies would not pay claims due to insolvency or other reasons. The findings of this study show that individuals behave in accordance with the predictions of both expected utility theory and prospect theory, that some respondents prefer standard insurance to probabilistic insurance policy while some others prefer probabilistic insurance to standard insurance policy. This study also finds that individual's risk aversion is not static when facing different level of risks and they require more than 1% reduction in premium for a compensation of 1% increase in risk