Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market

Posted: 25 Jan 2004

See all articles by Amy Finkelstein

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

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Abstract

We use a unique data set of annuities in the United Kingdom to test for adverse selection. We find systematic relationships between ex post mortality and annuity characteristics, such as the timing of payments and the possibility of payments to the annuitants' estate. These patterns are consistent with the presence of asymmetric information. However, we find no evidence of substantive mortality differences by annuity size. These results suggest that the absence of selection on one contract dimension does not preclude its presence on others. This highlights the importance of considering detailed features of insurance contracts when testing theoretical models of asymmetric information.

Suggested Citation

Finkelstein, Amy and Poterba, James M., Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market. Journal of Political Economy, Vol. 112, No. 1, Pt. 1, pp. 183-208, February 2004. Available at SSRN: https://ssrn.com/abstract=489682

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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James M. Poterba (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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