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

@article{Finkelstein2004AdverseSI,
  title={Adverse Selection in Insurance Markets: Policyholder Evidence from the U.K. Annuity Market},
  author={Amy N. Finkelstein and J. Poterba},
  journal={Journal of Political Economy},
  year={2004},
  volume={112},
  pages={183 - 208}
}
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 annuitant's 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… Expand
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A model of annuity contract choice is developed and it is estimated that asymmetric information along the guarantee margin reduces welfare relative to a first best symmetric information benchmark by about £127 million per year, or about 2 percent of annuitized wealth. Expand
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