The life insurance market: Asymmetric information revisited

He, Daifeng

doi:10.1016/j.jpubeco.2009.07.001

Cited by 67 publications

(75 citation statements)

References 12 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…26 They conclude that the estimated affine function-which implies quantity discounts-is evidence against adverse selection in life insurance. Theorem 4 shows that quantity premia are not an implication of adverse selection as such, but of the joint imposition of adverse selection and (some form 23 He (2009) argues that selection bias accounts for the failure of monotonicity in Cawley and Philipson (1999): they use a cross section of the data and so exclude people who already bought policies, but died before the sample period. Using the same data, but taking into account this possible selection bias, He (2009) finds that monotonicity holds: riskier types buy more coverage.…”

Section: Using Curvature To Test For Adverse Selection In Insurancementioning

confidence: 99%

Optimal Insurance with Adverse Selection

Chade

Schlee

2008

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We solve the principal-agent problem of a monopolist insurer selling to an agent whose riskiness (loss chance) is private information, a problem introduced in Stiglitz's (1977) seminal paper. Terms of use: Documents in EconStor mayFor an arbitrary type distribution, we prove several properties of optimal menus, such as efficiency at the top and downward distortions elsewhere. We show that these results extend beyond the insurance problem we emphasize. We also prove that the principal always prefers an agent facing a larger loss and prefers a poorer one if the agent's risk aversion decreases with wealth.For the standard case of a continuum of types and a smooth density, we show that, under the mild assumptions of a log-concave density and decreasing absolute risk aversion, the optimal premium is backward-S-shaped in the amount of coverage-first concave, then convex. This curvature result implies that quantity discounts are consistent with adverse selection in insurance, contrary to the conventional wisdom from competitive models.

show abstract

Section: Using Curvature To Test For Adverse Selection In Insurancementioning

confidence: 99%

Optimal Insurance with Adverse Selection

Chade

Schlee

2008

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…The different columns illustrate that this coverage result is robust to the inclusion or exclusion of sample weights, and to each calendar year. Thus, a major difference in 18 The HRS questions are essentially the same as the SIPP, and the HRS is also widely used for life insurance analysis (Bernheim et al 2003;He, 2009He, , 2011Cawley and Philipson, 1999). Differences in life insurance quantities found in Bernheim et al (2003) and Gutter and Hatcher (2008) could be partially explained by confusion about the "cash value" and "face value" questions.…”

Section: Reconciling Resultsmentioning

confidence: 99%

“…Several recent empirical studies have analyzed issues related to the demand for, and adverse selection in, life insurance in the United States (Cawley and Philipson 1999;He 2009He , 2011Harris and Yelowitz 2014;Hedengren and Stratmann, 2015). Furthermore, mortality risk and demand for life insurance has been analyzed at the international level (Li, Moshirian, Nguyen, and Wee 2007;Gatzert and Wesker 2014).…”

Section: Literature Reviewmentioning

confidence: 99%

Racial Disparities in Life Insurance Coverage

Harris

Yelowitz

2015

SSRN Journal

View full text Add to dashboard Cite

We evaluate the extent to which there are racial disparities in life insurance coverage using multiple years of the Survey of Income and Program Participation between 2001 and 2010. We find that African-Americans hold significantly more life insurance after controlling for other factors, especially employer-sponsored and whole life insurance. We demonstrate that our findings diverge from prior work because we examine all households instead of focusing exclusively on married and cohabitating households. The findings on life insurance coverage and composition imply that earnings shocks due to mortality are not a contributing factor to racial disparities in wealth.

show abstract

“…4 These results are in contrast to contributions from the behavioral literature indicating that individuals fare poorly at forecasting their own mortality prospects (Elder, 2013;Payne et al, 2013). Furthermore, findings with regards to informational advantages upon purchasing life insurance are mixed (Cawley and Philipson, 1999;He, 2009). Given that the primary drivers are idiosyncratic, yet the prevalence of these idiosyncrasies may vary by policy parameters such as age, underwriting method, risk class, etc., it is not surprising that insurers primarily consider these deterministic aspects when modeling lapsation for the purpose of pricing or policy valuation. Indeed, the theoretical and empirical literature provides positive support for such an approach.…”

mentioning

confidence: 92%

Policyholder Exercise Behavior in Life Insurance: The State of Affairs

Bauer

Gao²,

Moenig

et al. 2017

North American Actuarial Journal

View full text Add to dashboard Cite

The paper presents a review of structural models of policyholder behavior in life insurance.We first discuss underlying drivers of policyholder behavior in theory and survey the implications of different models. We then turn to empirical behavior and appraise how well different drivers explain observations. The key contributions lie in the synthesis and the systematic categorization of different approaches. The paper should provide a foundation for future studies, and we describe some important directions for future research in the conclusion.

show abstract

The life insurance market: Asymmetric information revisited

Cited by 67 publications

References 12 publications

Optimal Insurance with Adverse Selection

Optimal Insurance with Adverse Selection

Racial Disparities in Life Insurance Coverage

Policyholder Exercise Behavior in Life Insurance: The State of Affairs

Contact Info

Product

Resources

About