Between‐Group Adverse Selection: Evidence From Group Critical Illness Insurance
Journal
The journal of risk & insurance
ISSN
0022-4367
ISSN-Digital
1539-6975
Type
journal article
Date Issued
2017
Author(s)
Abstract
This article demonstrates the presence of adverse selection in the group insurance market. Conventional wisdom suggests that group insurance mitigates adverse selection because it minimizes individual choice. We complement this conventional wisdom by analyzing a group insurance scenario in which individual choice is excluded, and we find that group insurance alone is not effective enough to eliminate adverse selection; that is, between‐group adverse selection exists. Between‐group adverse selection, however, disappears over time if the group renews with the same insurer for a certain period. Our results thus indicate that experience rating and underwriting based on information that insurers learn over time are important in addressing adverse selection.
Language
English
Keywords
Adverse Selection
Information Asymmetry
Learning Over Time
Group Insurance
Critical Illness Insurance
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
American Risk and Insurance Ass.
Publisher place
Malvern, Pa.
Volume
84
Number
2
Start page
771
End page
809
Subject(s)
Division(s)
Eprints ID
229430