Annuity markets in Chile: competition, regulation - and myopia ?

Eduardo Walker ()

No 3972, Policy Research Working Paper Series from The World Bank

Abstract: The author studies annuity rates in Chile and relates them with industry competition. He finds (1) that annuity insurance companies paying higher broker commissions paid lower annuity rates; and (2) a structural break of the long-run elasticity of annuity rates to the risk-free rate in 2001. Moreover, this structural break coincided with the submission of a new draft pension law proposing greater transparency in annuity markets and a generalized drop in broker commissions. The high commissions charged in the 1990s were partly returned to annuitants as informal (and illegal) cash rebates. Myopic pensioners preferred cash rebates over present values. Thus, the legal threat caused the drop in broker commissions, reduced the illegal practice of cash rebates, increased competition by way of annuity rates, and raised the long-run elasticity to one.

Keywords: Insurance&Risk Mitigation; Economic Theory&Research; Pensions&Retirement Systems; Investment and Investment Climate; Non Bank Financial Institutions (search for similar items in EconPapers)
Date: 2006-08-01
New Economics Papers: this item is included in nep-com, nep-fmk and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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