A new proposal to define insurance literacy: Paving the path ahead

Abstract

While the importance of insurance is widely recognised, for individuals as well as for society as a whole, the number of individuals actually buying insurance is dramatically low. After stressing this concept in this paper we focus on the critical comparison between three strands of research: financial literacy, insurance literacy, and behavioural insurance literacy and decision-making. Through an in-depth analysis of previous studies and empirical evidence, we set the stage to adapt the various definitions of financial literacy to propose our own definition of insurance literacy as a three-dimensional construct, based on three key pillars: knowledge, skills, and understanding. Finally, we analyse the limits resulting from the lack of insurance literacy and the possible benefits literate consumers can achieve. While our paper is built around our theoretical proposal of a new definition of insurance literacy, it can constitute an incentive for other researchers to analyse more in-depth insurance-related decisions with empirical studies, based on our theoretical foundation. Our final goal is thus to pave the way ahead.