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Project 2: Risk-Return-Understanding of Savings Phase in Life-Insurance Contracts

Contact: Pierre Joos

Abstract:
In this project, we want to analyze how well individuals can understand the risk-return profiles of the savings component of a life-insurance. In recent years, a number of new products have been introduced in the German market which have different investment styles and guarantee mechanisms. Today, the customer can choose from classical annual guarantee (Mindestverzinsung) over protection mechanisms (using CPPI or options mechanisms) to unit linked products with different mixes of risky and risk-free assets. At the same time, the regulatory requirements to inform the customer on the risk-return-profiles have also increased (e.g. PRIP, Produktinformationen für zertifizierte Altersvorsorgeverträge). However, it is not clear that this additional information actually helps the customer to understand the risk-return-profile of the different products better. In psychology, there is a well-researched phenomenon, called “description-experience-gap”, which says that individuals learn from experience much better that from descriptions. With an experimental study we want to test whether experience in form of a simulation provides more understanding to the individual than a pure description.