Pricing strategies in the German term life insurance market: An empirical analysis

The life insurance sector is highly regulated. Areas of regulation include not only solvency requirements but also product pricing. In most industries, companies aim to increase producer rents by using information regarding the customer's willingness to pay (WTP), which allows them to endeavor price discrimination if no perfect competition prevails. In this article, we investigate the pricing behavior in the German Term Life insurance market by analyzing market prices, actuarial fair pricing, and the WTP for eighteen customer groups and three product categories. The results show that premiums charged for budget Term Life insurance products are in some cases even below the actuarially fair price. For term life insurance products with additional services, regulation, and market conditions hinder insurance companies from employing advanced strategies of price discrimination and the employment of the WTP.