Testing for Adverse Selection in Insurance Markets

Journal of Risk and Insurance, Vol. 77, Issue 1, pp. 39-84 (2010)

Harvard Law and Economics Discussion Paper No. 651

51 Pages Posted: 25 Nov 2009 Last revised: 25 May 2017

See all articles by Alma Cohen

Alma Cohen

Harvard Law School; Tel Aviv University - Eitan Berglas School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Peter Siegelman

University of Connecticut - School of Law

Multiple version iconThere are 3 versions of this paper

Date Written: November 1, 2009

Abstract

This paper reviews and evaluates the empirical literature on adverse selection in insurance markets. We focus on empirical work that seeks to test the basic coverage - risk prediction of adverse selection theory - that is, that policyholders who purchase more insurance coverage tend to be riskier. The analysis of this body of work, we argue, indicates that whether such a correlation exists varies across insurance markets and pools of insurance policies. We discuss various reasons why a coverage-risk correlation may be found in some pools of insurance policies but not in others. We also review the work on the disentangling of adverse selection and moral hazard and on learning by policyholders and insurers.

Keywords: Insurance, adverse selection, moral hazard, accidents, claims, annuities, automobile insurance, health insurance, life insurance, risk-aversion, risk, coverage

JEL Classification: D82, G22

Suggested Citation

Cohen, Alma and Siegelman, Peter, Testing for Adverse Selection in Insurance Markets (November 1, 2009). Journal of Risk and Insurance, Vol. 77, Issue 1, pp. 39-84 (2010), Harvard Law and Economics Discussion Paper No. 651, Available at SSRN: https://ssrn.com/abstract=1513354

Alma Cohen (Contact Author)

Harvard Law School ( email )

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Tel Aviv University - Eitan Berglas School of Economics ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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European Corporate Governance Institute (ECGI) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Peter Siegelman

University of Connecticut - School of Law ( email )

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