Post by Nicoll on Aug 12, 2009 23:57:54 GMT 4
Perceptions of Fairness in Consumer Insurance Contracts
Chris Charles Nicoll
University of Auckland - Faculty of Business & Economics
July 14, 2009
Abstract:
Insurance Contracts often contain provisions calling upon the insured to maintain a certain pattern of behavior or state of affairs failing which cover will cease automatically. When used responsibly these provisions (in English and New Zealand law referred to as “warranties”) have public policy benefits strongly advocated by economists for their use as a tool to classify risk and also as a means of encouraging risk decreasing behavior and the converse. But in some jurisdictions there are legal sanctions against the use of these tools in cases where the actual loss to the individual insured was not in the event caused by non-compliance with the provision. The justification for this intervention is that the legal results where there is no causal link are “wrong and unjust”, unfair, “Draconian” or contrary to the “reasonable expectations” of the policyholders.
This survey seeks to test the intuitive response by the law reformers as there appears never to have been any empirical work done on the perceptions of consumers in this area.
Findings indicate a need for further empirical research as this first pilot study suggests that, provided insured parties are made aware of the existence of the warranties and the results where they are not complied with, they do not perceive the legal consequences as unfair. This is especially true where they are given an option to have or not to have the warranty in their contract and their premium will be lower if they do.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1433621_code1304254.pdf?abstractid=1433621&mirid=4
Chris Charles Nicoll
University of Auckland - Faculty of Business & Economics
July 14, 2009
Abstract:
Insurance Contracts often contain provisions calling upon the insured to maintain a certain pattern of behavior or state of affairs failing which cover will cease automatically. When used responsibly these provisions (in English and New Zealand law referred to as “warranties”) have public policy benefits strongly advocated by economists for their use as a tool to classify risk and also as a means of encouraging risk decreasing behavior and the converse. But in some jurisdictions there are legal sanctions against the use of these tools in cases where the actual loss to the individual insured was not in the event caused by non-compliance with the provision. The justification for this intervention is that the legal results where there is no causal link are “wrong and unjust”, unfair, “Draconian” or contrary to the “reasonable expectations” of the policyholders.
This survey seeks to test the intuitive response by the law reformers as there appears never to have been any empirical work done on the perceptions of consumers in this area.
Findings indicate a need for further empirical research as this first pilot study suggests that, provided insured parties are made aware of the existence of the warranties and the results where they are not complied with, they do not perceive the legal consequences as unfair. This is especially true where they are given an option to have or not to have the warranty in their contract and their premium will be lower if they do.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1433621_code1304254.pdf?abstractid=1433621&mirid=4