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On potential information asymmetries in long-term care insurance: A simulation study using data from Switzerland

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  • Ugarte Montero, Andrey
  • Wagner, Joël

Abstract

The long-term care insurance (LTCI) market in Switzerland is still in a very early development stage. In this work, we make use of a representative sample of the Swiss population to simulate the likely effects of previously discovered information asymmetries in the LTCI market. By resorting to LTCI preferences of potential customers, and using Monte Carlo simulations, we provide estimations of the expected probability and duration of dependence indicators. Thereby, we compare the frequency and severity of the sub-population that has shown interest in LTCI with the rest in different mortality scenarios. While in the Swiss demographic context, individuals have a high probability to experience loss of autonomy in their lifetime, we do not find evidence to believe that those interested in LTCI coverage are so based on privileged information about them being at greater risk. In fact, we discover that most people are not aware of their own risk to lose autonomy, which makes potential adverse selection in the LTCI market rather difficult.

Suggested Citation

  • Ugarte Montero, Andrey & Wagner, Joël, 2023. "On potential information asymmetries in long-term care insurance: A simulation study using data from Switzerland," Insurance: Mathematics and Economics, Elsevier, vol. 111(C), pages 230-241.
    • Handle: RePEc:eee:insuma:v:111:y:2023:i:c:p:230-241
    DOI: 10.1016/j.insmatheco.2023.04.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Long-term care; Insurance; Dependence; Information asymmetry; Adverse selection;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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