Do higher insurance premiums provoke larger reported losses? An experimental study

William G. Morrison and Bradley Ruffle

Journal of Risk & Insurance, 2025, vol. 92, issue 1, 203-226

Abstract: We investigate whether the price paid for insurance explains dishonesty in reporting an insurance claim. In our laboratory experiment, participants earn money in a real‐effort task but risk losing some of this income through one of four randomly assigned, privately observed loss amounts. Before observing their loss, participants indicate their reservation price for insurance that pays an indemnity equal to their stated loss. Participants are insured if their randomly assigned premium is less than their stated reservation price. This mechanism provides data on each participant's consumer surplus from insurance. After receiving their cash earnings minus their assigned loss in private, participants report their loss. We find that the insured report modestly but statistically insignificant larger losses than the uninsured. Among the insured, we find no clear evidence that their reporting of excess losses increases in the randomly assigned price of insurance or decreases in the consumer surplus from insurance.

Date: 2025
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https://doi.org/10.1111/jori.12502

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Working Paper: Do higher insurance premiums provoke larger reported losses? An experimental study (2024)
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