Separate, Bundled, or Semi-bundled : An Experimental Study on Insurance Contract Preferences

This article examines insurance choices, observed through a laboratory experiment. We find that proposing a single insurance policy for multiple risks, known as bundled insurance, reduces the demand for coverage while mitigating adverse selection effects and enhancing insurers’ ability to manage losses. In contrast, offering a separate contract for each risk increases coverage for insured individuals but exposes insurers to greater adverse selection. Finally, we test a new type of insurance called semi-bundled insurance, which lies between separate and bundled insurance, conditioning the insured to choose a minimum number of risks to cover. Although we do not observe a significant difference in insurance coverage compared to separate insurance, we note an improvement in managing adverse selection relative to separate policies. These findings provide promising perspectives for addressing the issue of underinsurance while maintaining a minimum diversification of risk, which is essential for the sustainability of insurers.