Evidence of Adverse Selection in the Group Insurance Market

30 Pages Posted: 21 Feb 2014 Last revised: 5 May 2014

See all articles by Martin Eling

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Ruo Jia

Department of Risk Management and Insurance, School of Economics, Peking University

Yi Yao

Peking University - School of Economics

Date Written: February 17, 2014

Abstract

This paper demonstrates the existence of adverse selection in the group insurance market with no individual choice. We provide evidence against the “conventional wisdom” that group insurance mitigates adverse selection because of the mixture of high risks and low risks. We show, however, that asymmetric learning effects mitigate the group adverse selection after a few policy periods.

Keywords: Information Asymmetry, Asymmetric Learning, Insurance Decision, Group Health Insurance, Critical Illness Insurance

Suggested Citation

Eling, Martin and Jia, Ruo and Yao, Yi, Evidence of Adverse Selection in the Group Insurance Market (February 17, 2014). University of St.Gallen, School of Finance Research Paper No. 2014/3, Available at SSRN: https://ssrn.com/abstract=2397199 or http://dx.doi.org/10.2139/ssrn.2397199

Martin Eling (Contact Author)

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Ruo Jia

Department of Risk Management and Insurance, School of Economics, Peking University ( email )

Yiheyuan Rd. 5
Haidian
Beijing, 100871
China

Yi Yao

Peking University - School of Economics ( email )

Beijing
China

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