On the Demand Effects of Rate Regulation – Evidence from a Natural Experiment

We analyze the influence of rate regulation on insurance demand in an annuity setting. With a unique dataset containing a natural experiment due to German federal regulation and the E.U. Gender Directive we study the impact of such rate regulation on contract choices in variable annuity products. Our data contains two different choice variables with antithetic predictions for men and women, meaning that women should increase their demand in one choice and decrease it in the other, while men should exhibit opposite behavior. We find with regard to both choices that both men and women have lower demand for guarantees within the annuity in unisex contracts than without rate regulation. As the effect is equal for men and for women and observable in both choices, we cannot convincingly link it to adverse selection. We hypothesize that the effect could instead be explained by the public perception of unisex tariffs.