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Pensions, annuities, and long-term care insurance: on the impact of risk screening

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  • M. Martin Boyer

    (HEC Montréal (Université de Montréal))

  • Franca Glenzer

    (HEC Montréal (Université de Montréal))

Abstract

We examine the interaction between an individual’s pension scheme and her purchase of long-term care insurance in a context where individuals learn their longevity risk type over time. We show that the structure of an individual’s retirement pension scheme is an important component of her selection of long-term care insurance coverage. When individuals purchase their retirement product and long-term care insurance after learning their risk type, low-risk individuals signal their type solely on the retirement product market, which allows all individuals, irrespective of their risk type, to perfectly insure against the incidence of long-term care shocks. When individuals purchase their retirement product before learning their risk type, then the retirement product will pool all risk types, which prevents any signaling in that market. If individuals still learn their type before purchasing long-term care insurance, then having to signal their type in the long-term care insurance market considerably reduces the take-up rate for such protection for all risk types.

Suggested Citation

  • M. Martin Boyer & Franca Glenzer, 2021. "Pensions, annuities, and long-term care insurance: on the impact of risk screening," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 46(2), pages 133-174, September.
    • Handle: RePEc:pal:genrir:v:46:y:2021:i:2:d:10.1057_s10713-020-00058-9
    DOI: 10.1057/s10713-020-00058-9
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    More about this item

    Keywords

    Asymmetric information; Information acquisition; Adverse selection; Longevity risk; Screening;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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