Annuity markets in Chile : competition, regulation - and myopia ?
AbstractThe author studies annuity rates in Chile and relates them with industry competition. He finds (1) that annuity insurance companies paying higher broker commissions paid lower annuity rates; and (2) a structural break of the long-run elasticity of annuity rates to the risk-free rate in 2001. Moreover, this structural break coincided with the submission of a new draft pension law proposing greater transparency in annuity markets and a generalized drop in broker commissions. The high commissions charged in the 1990s were partly returned to annuitants as informal (and illegal) cash rebates. Myopic pensioners preferred cash rebates over present values. Thus, the legal threat caused the drop in broker commissions, reduced the illegal practice of cash rebates, increased competition by way of annuity rates, and raised the long-run elasticity to one.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 3972.
Date of creation: 01 Aug 2006
Date of revision:
Insurance&Risk Mitigation; Economic Theory&Research; Pensions&Retirement Systems; Investment and Investment Climate; Non Bank Financial Institutions;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-05 (All new papers)
- NEP-COM-2006-08-05 (Industrial Competition)
- NEP-FMK-2006-08-05 (Financial Markets)
- NEP-IAS-2006-08-05 (Insurance Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"An empirical analysis of the annuity rate in Chile,"
Policy Research Working Paper Series
3929, The World Bank.
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