Take up rate question
Hi,
For Japan, it says the flood coverage is bundled with standard homeowner policy but that the take-up rates for flood coverage remain relatively low.
Similarly, UK also bundles flood coverage with home insurance but it says "if they choose to buy flood coverage" on page 16, 1st column.
Does this mean that a policyholder can withdraw its flood coverage? (I guess, with an endorsement and get a discount? But doesn't this take us back to the whole problem of adverse selection then?)
Or does this just mean "if they choose to buy flood coverage" as in "if they choose to buy homeowner insurance"? (so for japan, it would mean that the take-up rate for flood coverage is low because the homeowner insurance take-up rate is low?)
Thank you,
Comments
The difference between Japan and the U.K. (which is not evident from the table on p13) is that in Japan you have to opt-in for the bundling of flood with homeowners. In the U.K., it is automatically included. That means a U.K. policyholder would have to opt-out if they didn't want flood coverage. Most people probably don't even think about those kinds of things, so they end up getting flood coverage without even realizing it.
It's true that if all consumers were knowledgeable consumers, then U.K. homeowners in a low-risk area could save money by opting out, leaving only the high-risk homeowners. That's exactly the adverse selection you mentioned. But in practice that doesn't seem to happen.
They text doesn't say anything about uptake of homeowner's insurance in general. I would guess that the uptake for homeowners on both Japan and the U.K. is high
A follow up with this question. If Japan is an opt-in, how is this different from other countries that had the packaging = "Optional (add on)" in the source text?
The source doesn't really talk about whether a country is opt-in or opt out. If you are optional, you can be either an opt-in or opt-out optional. As Graham alluded to above, an opt-out option would naturally have higher take-up rates
In that case, what is the inherent between Option and bundled? I thought that bundled wa a synonym of Opt out and Optional a synonym of opt-in. If both options can be opt-in or opt-out, what is the difference between Optional and Bundled?
Similarly, in Question Fall 2019 #11 b., it is suggested to have a Mandatory program. This way it maximize the take-up.
But it also says that we should be using a Bundled coverage to ensure subsidization between low-risk and high-risk.
Isn't it redundant? I guess if the answer was accepted, that's fine, but it just doesn't feel right to me.
Bundled just means that it is available together with your coverage rather than a standalone coverage. When you are bundled, you can either be opt in (Where you are not enrolled by default meaning you have to actively state that you wish to participate) or opt-out (Where you are enrolled by default and you have to specifically mention that you would not like to participate if that is your intent)
These are just sample answers -> meaning they are from different candidates so no redundancy here, just two different candidates saying the same thing in a different way