Between‐Group Adverse Selection: Evidence from Group Critical Illness Insurance

39 Pages Posted: 15 May 2017

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

University of St. Gallen - Institute of Insurance Economics; University of St. Gallen - School of Finance

Yi Yao

Peking University - School of Economics

Date Written: June 2017

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.

Suggested Citation

Eling, Martin and Jia, Ruo and Yao, Yi, Between‐Group Adverse Selection: Evidence from Group Critical Illness Insurance (June 2017). Journal of Risk and Insurance, Vol. 84, Issue 2, pp. 771-809, 2017. Available at SSRN: https://ssrn.com/abstract=2967614 or http://dx.doi.org/10.1111/jori.12097

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

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

Kirchlistrasse 2
St. Gallen, St. Gallen 9000
Switzerland

University of St. Gallen - School of Finance ( email )

Kirchlistrasse 2
St.Gallen, CH-9010
Switzerland
+41 71 224 79 74 (Phone)
+41 71 224 79 90 (Fax)

HOME PAGE: http://www.ivw.unisg.ch/de/Lehrstuhl%20Eling/Team%20VM?person=b8b3d7ef-04dd-4693-8b9f-946e91a6bcf4&n

Yi Yao

Peking University - School of Economics ( email )

Beijing
China

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