Adverse Selection in the Annuity Market When Payoffs Vary over the Time of Retirement

Brunner, Johann K.; Pech, Susanne

doi:10.1628/0932456054254498

Cited by 12 publications

(10 citation statements)

References 16 publications

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“…In such settings, alternative methods for evaluating its efficiency and equity consequences are necessary. As such, the practical 73 Brunner and Pech (2005). 74 Rothschild (2014).…”

Section: Discussionmentioning

confidence: 99%

Economic Effects of Risk Classification Bans

Dionne

Rothschild

2014

Geneva Risk Insur Rev

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Risk classification refers to the use of observable characteristics by insurers to group individuals with similar expected claims, to compute the corresponding premiums, and thereby to reduce asymmetric information. Permitting risk classification may reduce informational asymmetry-induced adverse selection and improve insurance market efficiency. It may also have undesirable equity consequences and undermine the implicit insurance against reclassification risk, which legislated restrictions on risk classification could provide. We use a canonical insurance market screening model to survey and to extend the risk classification literature. We provide a unified framework for analysing the economic consequences of legalised vs banned risk classification, both in static-information environments and in environments in which additional information can be learned, by either side of the market, through potentially costly tests.

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“…In such settings, alternative methods for evaluating its efficiency and equity consequences are necessary. As such, the practical 73 Brunner and Pech (2005). 74 Rothschild (2014).…”

Section: Discussionmentioning

confidence: 99%

Economic Effects of Risk Classification Bans

Dionne

Rothschild

2014

Geneva Risk Insur Rev

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“…In non-exclusive contracting environments with linear pricing, however, distinguishing between single-risk and many-risks is qualitatively important. As Brunner and Pech (2005) and Rothschild (2014) …”

Section: Non-exclusive Contracting Linear Pricing and Multi-state Mmentioning

confidence: 94%

Economic Effects of Risk Classification Bans

Dionne

Rothschild

2014

SSRN Journal

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Abstract:Risk classification refers to the use of observable characteristics by insurers to group individuals with similar expected claims, to compute the corresponding premiums, and thereby to reduce asymmetric information. Permitting risk classification may reduce informational asymmetry-induced adverse selection and improve insurance market efficiency. It may also have undesirable equity consequences and undermine the implicit insurance against reclassification risk which legislated restrictions on risk classification could provide. We use a canonical insurance market screening model to survey and to extend the risk classification literature. We provide a unified framework for analyzing the economic consequences of legalized vs. banned risk classification, both in staticinformation environments and in environments in which additional information can be learned, by either side of the market, through potentially costly tests.

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“…This inherent contingency results in expensive annuities that can be unaffordable for many customers for whom they would otherwise be desirable. Adverse selection has been observed to be particularly strong for particular combinations of product type and contract size (Brunner and Pech 2005).…”

Section: Annuitizationmentioning

confidence: 99%

“…By classifying consumers to better reflect their longevity risk, individuals with poorer attributes would be able to access an annuity market whose current method of pricing is not appealing to their profiles owing to longevity expectations. In other research, Brunner and Pech (2005) explored a three-period life cycle model involving two periods of retirement. Annuity payouts were allowed to differ in the two periods, and two groups of annuitants were considered: high risk and low risk.…”

Section: Annuities In the Financial Industry And Public Policymentioning

confidence: 99%

Research and Reality: A Literature Review on Drawing Down Retirement Financial Savings

MacDonald

Jones

Morrison

et al. 2013

North American Actuarial Journal

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How do, could, and should retirees draw down their financial savings? This article reviews over 100 papers on this topic from the perspective of individuals, families, governments, and financial institutions. Three significant conceptual/methodological weaknesses in the existing literature are identified: (1) analysts have examined a limited range of self-managed drawdown strategies; (2) nearly all have ignored home ownership, pensions, debt, and government taxes and transfers when quantitatively evaluating alternative drawdown strategies; and (3) there is a well-acknowledged gap between the behavior implied by economic models and that of real-life individuals, particularly when it comes to voluntary annuitization. Expanding the set of drawdown strategies evaluated (e.g., including larger payouts when life expectancy is reduced after the onset of a significant health condition, or using savings as bridge income to delay the take-up of Social Security payments), refining the income concept used, and more exact modeling of the trade-offs underlying individual decision-making will likely increase the appeal of self-managed drawdown strategies and help resolve the "annuity puzzle" that has long dominated this line of research. It may also lead to advice and financial products that will better meet the needs of retirees.

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Adverse Selection in the Annuity Market When Payoffs Vary over the Time of Retirement

Cited by 12 publications

References 16 publications

Economic Effects of Risk Classification Bans

Economic Effects of Risk Classification Bans

Economic Effects of Risk Classification Bans

Research and Reality: A Literature Review on Drawing Down Retirement Financial Savings

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