In an environment where unfortunate consequences are possible but timing is unpredictable, both consumers facing risks and entrepreneurs looking for productive opportunities have searched for and engineered ways of spreading and mitigating those risks. Life insurance is well known for mitigating financial risks to a family concerned about the unpredictable timing of death of a breadwinner and is often available through employers as an employee benefit. Likewise, casualty insurance like fire insurance and automobile/truck operating coverages are also well known and even mandatory in many circumstances and jurisdictions. Many states require automobile casualty insurance with auto and truck registrations, for instance. But these are not the only areas where insurance and other risk-spreading techniques have arisen for individuals; consumer borrowing and lending is another. On consumer loans, taking on a stream of monthly installment payments can be risky for individuals, even though overall expected performance of an insurance policy portfolio usually is predictable for insurers. This property makes consumer borrowing another candidate for insurance products.
Longitudinal research over more than three decades show that consumers favorably view the products. The highly regarded University of Michigan Survey Research Center conducted a recent survey of consumer attitudes and purchase propensities of these products. Published in December 2017, analysis of the survey by two Federal Reserve Board economists shows that:
- [Purchasers] are somewhat otherwise less insured…and more frequently have either health, financial, or possibly both kinds of concerns.
- Roughly 20 percent of American adults have purchased these products, aimed at fostering personal financial peace of mind
- Almost 85 percent of consumers who had purchased the products felt the products were a “good idea”
- Over 70 percent of purchasers would purchase the products again
Source: Federal Reserve (Read full report)