Are the dimensions of private information more multiple than expected? Information asymmetries in the market of supplementary private health insurance in England

Our study reexamines standard econometric approaches for the detection of information asymmetries on insurance markets. We claim that evidence based on a standard framework with 2 equations, which uses potential sources of information asymmetries, should stress the importance of heterogeneity in the parameters. We argue that conclusions derived from this methodology can be misleading if the estimated coefficients in such an `unused characteristics' framework are driven by different parts of the population. We show formally that an individual's expected risk from the perspective of insurance, conditioned on certain characteristics (which are not used for calculating the risk premium), can equal the population's expectation in risk { although such characteristics are both related to risk and insurance probability, which is usually interpreted as an indicator of information asymmetries. We provide empirical evidence on the existence of information asymmetries in the market for supplementary private health insurance in the UK. Overall, we found evidence for advantageous selection into the private risk pool; ie people with lower health risk tend to insure more. The main drivers of this phenomenon seem to be characteristics such as income and wealth. Nevertheless, we also found parameter heterogeneity to be relevant, leading to possible misinterpretation if the standard `unused characteristics' approach is applied

In sickness and in Health? Dynamics of health and cohabitation in the United Kingdom

The purpose of this paper is to analyse the dynamics of cohabitation and functional impairments among older people. Our research has three main aims. Firstly, we want to analyse the effects of cohabitation on disability. Secondly, we want to study time trends in disability and cohabitation jointly to explore relationships between the two. Thirdly, we examine socioeconomic differences -- as captured by educational attainment -- in disability. These issues are of great interest from several points of view. Firstly, they address an emerging theoretical debate concerning the effects of cohabitation on health and contribute to a sparse empirical literature on the topic. Secondly, our findings are highly policy relevant. Concerning long-term care for older people, for example, cohabitation is of double importance: firstly, since people who cohabit tend to be healthier, and secondly, since a partner is the typical provider of informal care. In a time where family structures among the old are likely to change (due to changes in life expectancy and divorce rates), our research will be useful for planning purposes. Finally, the model can be used to simulate populations of certain characteristics. Hence, it can be used to derive insurance premiums in order to reduce the problem of selection effects in the market for long-term care insurance. Using the British Household Panel Survey dataset, we apply panel data and simulation techniques to exploit the longitudinal characteristic of the panel. We estimate the two dependent variables -- cohabitation status and disability -- jointly, and allow for time trends, age effects and unobserved heterogeneity. We find that there are systematic differences between single and cohabiting people so that a cross sectional analysis would overestimate the causal relationship; nevertheless, cohabitation has a strong and positive effect on health. Furthermore, we find that bereavement of a partner has a significant negative impact on health

The decomposition of disease and disability life expectancies in England 1992-2004

ISBN 978-1-905752-23-2 www.cass.city.ac.uk "This paper originated in an independent report for the Department of Health. Any opinions expressed in this paper are my/our own and not necessarily those of my/our employer or anyone else I/we have discussed them with. In particular, the views expressed may not necessarily reflect the views or policies of the Department of Health. You must not copy this paper or quote it without my/our permission"

Investigating the market potential for customised long term care insurance products

Previous economic research into long-term care (LTC) has mainly been focussed on one issue: the reasons why the LTC insurance market has not been successful. In this contribution, we analyse the prospects for a new type of insurance policy, which offers a top-up on the resources already available to the individual. We abstract from most problems inherent in LTC insurance markets and derive premium rates for various types of insurance policies. Generally, we find that the top-up option reduces premium rates considerably, to the point where it might be expected that a substantial number of people would take up policies, were they available

An analysis of disability - linked annuities

In this paper we investigate a special type of annuity where the annuity is issued to a policyholder who is in reasonable health at the outset; however, if the policyholder subsequently becomes disabled then the annuity payments are increased to a higher level depending on the level of disability. We analyse different types of disability-linked annuities, both single life and last survivor, in order to examine their main characteristics and assess their suitability as potential new products in the annuity and long term care (LTC) market. Initially, we use a central set of assumptions - in particular, incorporating the central set of morbidity trend assumptions used by Rickayzen and Walsh (2002) - to calculate various quantities. These include the expected times spent in different states of disability, the probabilities of each level of annuity enhancement eventually being triggered and the single premiums required. We then use pessimistic and optimistic assumptions to replicate the expansion and compression of morbidity theories, respectively, to provide a sensitivity analysis. In addition, we consider the effect of widening the definition of disability used for the product to make it more appealing to consumers. We also examine the underwriting considerations by calculating the theoretical premium which should be charged if a moderately disabled individual were to purchase the product. Finally, we estimate the potential market in the UK for this group of products. Our main conclusion is that when we compare the disability-linked annuity with the corresponding traditional whole life annuity, the increase in premium involved is relatively modest. The reasons for this are twofold. Firstly, the mortality and morbidity risks act in opposite directions. Therefore, an individual receiving an annuity enhancement due to severe disability will also face shorter life expectancy. Secondly, periods of disability are likely to occur towards the end of life. Therefore, the value of the annuity enhancements is relatively small since they are discounted so heavily. For similar reasons, we find that moving to optimistic or pessimistic morbidity assumptions has relatively little effect on the premiums. Finally, we note that the product is only likely to be affordable to the more affluent sector of the UK elderly population; nevertheless, we estimate that there is a considerable potential market for a product which appears to have many attractive features

The Role of Private Finance in Paying for Long Term Care

An ageing population and increased longevity means that long term care will become progressively more expensive. In 2009 the Government published a Green Paper on future funding options and a White Paper in 2010. This article considers the role of private finance products under the ‘Partnership’ option. It finds that few households are able to pay for LTC based on income and savings but the number increases if housing assets are included. We show that products can be devised for a range of circumstances, although state support would need to continue. We propose a simplified means testing system based on a combination of income and assets

A study into the detrimental effects of obesity on life in the UK

This paper is an investigation into the effect of excess body fat on mortality within the UK. Health surveys from the UK are used to apply a Cox proportional hazards model to UK-specific data (Health and Lifestyle Survey, 1985) to provide an analysis, at various ages, of the effects of obesity on life expectancy. We explore the issues by replicating and extending US research with UK data using both Body Mass Index(BMI) and Waist to Height (WTH) as obesity measures. We measure the impact of obesity in adults on life expectancy and find that mortality risk associated with obesity in the UK is similar to that found in US studies. However, importantly, we also show WTH to be a better indicator of mortality risk than BMI. Our results include the number of years of life lost (YLL) for UK lives in various severitycategories of obesity compared with lives of the same age at optimum levels of BMI or WTH. The research emphasizes how important it is for the government to promote healthy lifestyles in order to avoid premature death