Ambiguity and conflict aversion in the field of insurance: insurers’ attitude to imprecise probabilities

Information ambiguity and conflict are prevalent in insurance decision because experts may not agree on the probability of the risk. This research investigates insurance decision under either ambiguous and consensual or ambiguous and conflicting information about the probability of the risk. Seventy-eight professional insurers completed a questionnaire that contained two scenario: ”Pollution” and ”Earthquake”. The insurer is asked the premium he would charge to cover the risk in three situations: a risk with a precise probability, a risk with an ambiguous and consensual ambiguity and a risk with an ambiguous and conflicting ambiguity. First, the questionnaire provided evidence for ambiguity aversion but no comparative effect was found. Second, the effect of conflicting evidences was also contemplated. From a statistical point of view, conflicting information is not dispreferred to ambiguous and agreeing messages. However, many insurers mentionned disagreement as a source of greater uncertainty and more insurers refused to charge the risk in the ambiguous and conflicting situation. Third, we found that the psychological concept of tolerance to ambiguity (Budner 1962) is slightly predictive of the economic behaviour under ambiguity in the eathquake scenario only. The findings suggest an impact of the quality of the information provided to the insurers on the premium set up. The ambiguity and the disagreement around the probability of the risk increase the premium.