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The Impact of Advertising on Price Sensitivity in Life Insurance Market

  • Journal of Insurance and Finance
  • 2012, 23(3), pp.33-62
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

Choi Young Mok 1,  Dong-Gyum Kim 2

1청주대학교
2보험연구원

Accredited

ABSTRACT

This study investigates the impact of advertising expenditure on the price sensitivity of insurance demand and surrender and lapse rates. Especially, we test two forms of hypothesis on advertising: (1) a persuasive view of advertising, in which advertising could reduce consumers' price sensitivity and (2) an informative view of advertising,in which it is likely to increase consumers' price sensitivity. We show the followings : First, a model, using premium as a dependent variable, supports the persuasive views of advertising as the sign on coefficients of the insurance price is negative and the inter-action term is negative. Secondly, another model, using surrender and lapse rates as a dependent variable, also supports the persuasive views of advertising as the signs on coefficients of the insurance price and the inter-action term are all negative. These results imply that increasing consumers' loyalty by enhancing brand images is more effective for insurance companies than price differentiation strategies to maintain high price sensitivity by the advertisement focusing on the function of insurance products.

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