How do disclosures affect financial choices? The case of life insurance in India
Insurance is one of the most popular investment avenues in India. Recent miss-selling scandals in insurance (as well as financial products more generally) have brought a renewed focus on how best to regulate their sale. This has meant rules on commissions paid to distributors of these products, increased fiduciary responsibilities, as well as improved disclosures. Removing hidden costs and improving disclosures is one of the mandates of a recent committee set up by the Ministry of Finance, Government of India “to recommend measures for curbing mis-spelling and rationalising distribution incentives in financial products”. There is, however, no consensus on whether disclosures work.
Given the importance of insurance, and the regulatory push towards improved disclosures, this research aims to:
- Understand household motivation for the purchase of insurance products.
- Design disclosure formats for insurance products.
- Evaluate the effectiveness of different disclosure formats on:
- How well a customer understands the product and
- The decision to purchase the product.
The research will result in an academic paper that aims to contribute to the emerging literature on household finance and consumer protection. It will inform the debate on whether financial disclosures work.
The research also aims to make a contribution to financial sector policy. If disclosures do not help customers actually understand the nuances of a financial product, then the implications for policy are to move towards a “seller-beware” model, where the entire responsibility of a sale is placed on product providers. On the other hand, if disclosures do help, then our findings on formats can contribute to the design of better disclosure regulations in the financial sector.