Separate, bundled, or semi-bundled: an experimental study on insurance contract preferences

This article examines insurance choices under different contract types through a laboratory experiment. We find that proposing a single insurance policy for multiple risks, known as bundled insurance, does not necessarily reduce the demand for coverage relative to the risk carried by the individual, as the effect depends on the level of risk aversion, in line with Expected Utility Theory predictions. In contrast, offering separate contracts increases the number of insured individuals but exposes insurers to greater adverse selection. We also test a new type of insurance called semi-bundled insurance, which lies between separate and bundled insurance and requires the insured to choose a minimum number of risks to cover. Relative to the shift from separate to bundled insurance, semi-bundled insurance produces a smaller improvement in the management of adverse selection and a smaller reduction in the number of insured individuals. It does not significantly affect relative coverage, making it a potential compromise between separate and bundled insurance. These findings provide promising perspectives for addressing individuals' willingness to choose hazards to be covered while maintaining a minimum diversification of risk, which is essential for the sustainability of insurance.