Pessimists are willing to pay a high price for insurance

New CBS research shows that Danes tend to overestimate the risk of having an insurance claim, which is why they are willing to pay a higher price for insurance.


By Marie Irgens Jacobsen, translation Katrine Rask Andersen

Are Danes pessimists when it comes to insurance claims? It would seem so. Next time you’re about to buy insurance, stop and take a moment to think. It’s highly likely that you’re overestimating the risk of having to make a claim. And this can make you willing to pay too much for your insurance.

- All age groups overestimate the risk of making a claim, and especially large claims, explains Morten Lau, professor of experimental economics at the Department of Economics, CBS, one of three researchers behind the study "Willingness to Pay for Insurance in Denmark". The more likely people think it is that they will have to make claim, the more they are willing to pay for their insurance:

- What surprised us is how much more people are actually willing to pay if they overestimate the risk of a claim even by just a little bit, adds Professor Morten Lau.

Pessimists willing to pay more
The risk of making a car insurance claim for more than DKK 50,000 within one year, for example, is only 2.5 percent. This study shows, however, that the average Dane may assess the risk to be as much as 10 percent. 

This means that the price people are willing to pay goes up significantly. Professor Morten Lau clarifies:

- A slightly overly pessimistic risk assessment may mean, for instance, that the price a man under the age of thirty is willing to pay for car insurance can be up to five times the average claim payout.

Stop and consider
But does Danish pessimism mean Danes pay too much for insurance?

- There’s widespread competition on the Danish insurance market, which means that insurance companies cannot get away with charging whatever they please. Next time you’re in a music and electronics store like Fona, this is worth considering before you decide to purchase product insurance. The risk of having to make a claim isn’t quite as great as you might believe! Perhaps it can pay off to self-insure and run the risk yourself, adds Professor Morten Lau.

New method for calculations
The calculations are based on numbers from the Danish insurance company Tryg A/S, Statistics Denmark and a study of economic behaviour carried out by researchers at CBS. The study looks at how much Danish households are theoretically willing to pay for contents insurance, car insurance and home insurance. The researchers studied, for example, people’s ability to judge how great an insurance claim risk was and how that affected their willingness to pay for insurance.

A crucial factor for the willingness to pay is people’s readiness to take risks. This willingness to take risks was measured for a representative part of the Danish population and coupled with claim payments from Tryg, as well as with information on income and assets from Statistics Denmark.

For more information please contact professor Morten Lau, tel: +45 38152369, e-mail: or CBS Press Relation

The page was last edited by: Communications // 12/23/2013