THE INFORMATIONAL VALUE OF INSURANCE PURCHASES - EVIDENCE FROM THE PROPERTY-LIABILITY INSURANCE MARKET

The purchase of insurance provides a potentially finer informational p artition over the distribution of post-loss resolution wealth that may allow favorable adaptation of intermediate consumption, investment, o r other decisions. Such a positive informational value does not requir e consumer risk aversion. Lines of insurance with longer resolution pe riods should impact relatively more decisions and have higher informat ional value. Under standard assumptions on preferences, in the absence of informational value, risk premiums paid for insurance by risk aver se consumers should not increase as the loss resolution period increas es. Empirical tests using data from the property-liability insurance m arket suggest that the willingness to pay per dollar of coverage (as m easured by relative market demand across lines of insurance) is greate r for lines of insurance with longer resolution periods consistent wit h a positive informational value of insurance. The results suggest tha t other financial assets may also have differential informational valu e.