A Theory and Practice on the Association between Risk Aversion and Insurance Consumption

KIM DAEHWAN

doi:10.23842/jif.2019.30.4.003

Attempts have been made to prove empirically the theoretical hypotheses since the development of economics of insurance theory that the stronger the risk averse propensity, the greater the demand for insurance products. However, previous studies that attempted empirical analyses had limitations due to the limitation of the data, hardness to generalize the results, or the absence of a separate questionnaire to measure the risk aversion of an individual. On the other hand, this study utilizes the National Survey of Tax and Benefit that represents a population while there is a separate questionnaire to measure the risk aversion of an individual. The empirical results show that the stronger the risk averse propensity, the greater the demand for insurance products to hedge the risk of injury, illness, and death. As a result of further analysis of whether the questionnaire properly measures the individual's actual hedging propensity compared to a number of related studies, it was concluded that the hedging propensity variable is reliable information. Nevertheless, the risk aversion is measured using only one questionnaire, so the reliability or validity of the measurement may be low.

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