Consumers’ interest in specialized and flexible insurance solutions spurs the demand for short-term insurances, product insurances and extended warranties. The complementary relationship between the proposed insurances and the product (or activity) to be insured gives rise to cross-product signaling effects. Assuming that the insurance price signals the underlying core product’s riskiness, we explore the risk-revealing role of price across products. We extend research on the dual role of price and investigate the existence and properties of the proposed risk signal. The results from a choice-based conjoint study show that: (1) the price of a complementary insurance serves as a risk signal regarding the core product, (2) the strength of the risk signal depends on its consistency, and (3) the insurance price negatively affects the demand for the core product. Our findings emphasize the role of cross-product risk signals and their impact on pricing strategies for products to be insured and complementary insurances.

Authors: Martin Natter, Jochen Reiner and Julia Wamsler