Between-Group Adverse Selection: Evidence from Group Critical Illness Insurance
This paper demonstrates the presence of adverse selection in the group insurance market for policies that allow no individual choice. As a “conventional wisdom,” group insurance mitigates adverse selection, since individual choice is minimized and group losses have less variability than individual losses. We complement this “conventional wisdom” by analyzing a group insurance scenario in which individual choice is excluded, and find that there is still adverse selection at the level of group, i.e. between-group adverse selection. Between-group adverse selection, however, disappears over time if the group renews with the same insurer for certain periods. Our results thus indicate that addressing adverse selection via group insurance is not necessarily effective enough to mitigate adverse selection, but that experience rating and underwriting based on the information that insurers learn over time are important.
|Date of creation:||Feb 2014|
|Date of revision:||Oct 2014|
|Contact details of provider:|| Phone: +41 71 243 40 11|
Fax: +41 71 243 40 40
Web page: http://www.unisg.ch/de/Schools/Finance.aspx
More information through EDIRC
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.:
- Smith, Bruce D & Stutzer, Michael J, 1990. "Adverse Selection, Aggregate Uncertainty, and the Role for Mutual Insurance Contracts," The Journal of Business, University of Chicago Press, vol. 63(4), pages 493-510, October.
- Mayers, David & Smith, Clifford W, Jr, 1982. "On the Corporate Demand for Insurance," The Journal of Business, University of Chicago Press, vol. 55(2), pages 281-96, April.
- Spence, Michael, 1978. "Product differentiation and performance in insurance markets," Journal of Public Economics, Elsevier, vol. 10(3), pages 427-447, December.
- Robin Hanson, 2005. "Adverse selection in group insurance: The virtues of failing to represent voters," Economics of Governance, Springer, vol. 6(2), pages 139-157, 07.
- Amy Finkelstein & Kathleen McGarry, 2006. "Multiple Dimensions of Private Information: Evidence from the Long-Term Care Insurance Market," American Economic Review, American Economic Association, vol. 96(4), pages 938-958, September.
- Alma Cohen, 2012.
"Asymmetric Learning in Repeated Contracting: An Empirical Study,"
The Review of Economics and Statistics,
MIT Press, vol. 94(2), pages 419-432, May.
- Alma Cohen, 2008. "Asymmetric Learning in Repeated Contracting: An Empirical Study," NBER Working Papers 13752, National Bureau of Economic Research, Inc.
- Georges Dionne & Christian Gourieroux & Charles Vanasse, 2001. "Testing for Evidence of Adverse Selection in the Automobile Insurance Market: A Comment," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 444-473, April.
- Hajime Miyazaki, 1977. "The Rat Race and Internal Labor Markets," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 394-418, Autumn.
- Alma Cohen & Peter Siegelman, 2009.
"Testing for Adverse Selection in Insurance Markets,"
NBER Working Papers
15586, National Bureau of Economic Research, Inc.
- Alma Cohen & Peter Siegelman, 2010. "Testing for Adverse Selection in Insurance Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(1), pages 39-84.
- Alma Cohen, 2005. "Asymmetric Information and Learning: Evidence from the Automobile Insurance Market," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 197-207, May.
- Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
- Chiappori, Pierre-Andre & Salanie, Bernard, 1997. "Empirical contract theory: The case of insurance data," European Economic Review, Elsevier, vol. 41(3-5), pages 943-950, April.
- Mayers, David & Smith, Clifford W, Jr, 1981. "Contractual Provisions, Organizational Structure, and Conflict Control in Insurance Markets," The Journal of Business, University of Chicago Press, vol. 54(3), pages 407-34, July.
- Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
- Mayers, David & Smith, Clifford W, Jr, 1990. "On the Corporate Demand for Insurance: Evidence from the Reinsurance Market," The Journal of Business, University of Chicago Press, vol. 63(1), pages 19-40, January.
- Kunreuther, Howard & Pauly, Mark, 1985. "Market equilibrium with private knowledge : An insurance example," Journal of Public Economics, Elsevier, vol. 26(3), pages 269-288, April.
When requesting a correction, please mention this item's handle: RePEc:usg:sfwpfi:2014:03. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geraldine Frei)
If references are entirely missing, you can add them using this form.