Paper title: Explaining consumer inertia: Drivers of attention and choice in car insurance market
Kaido Kepp joint work with Kadri Männasoo

Abstract:

We study the vehicle lessees’ Motor Own Damage insurance search frictions and choices. We use a consumer-level annual panel of policy and insurance offers’ data from 2010-2018 from the biggest insurance broker consolidating the Estonian car insurance market offers. We apply the two-stage discrete choice model by Hortaçsu et al 2017 that identifies the sources of consumer inertia by separating the attention and choice decisions given the observed switches to new providers. Our results show strong inertia that stems from consumer inattention and considerable heterogeneity of inattention across consumer groups. Consumers choose from a set of offers and their decisions to switch or stay with the current provider reveal substantial price elasticity and a modest effect of insurance provider’s brand preference.

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