Market design for the provision of social insurance: the case of disability and survivors insurance in Chile

Gonzalo Reyes Hartley

Journal of Pension Economics and Finance, 2010, vol. 9, issue 3, 421-444

Abstract: As part of the pension reform recently approved in Chile, the government introduced a centralized auction mechanism to provide the Disability and Survivors (D&S) Insurance that covers recent contributors among the more than eight million participants in the mandatory private pension system. This paper is intended as a case study presenting the main distortions found in the decentralized operation of the system that led to this reform and the challenges faced when designing a competitive auction mechanism to be implemented jointly by the Pension Fund Managers (AFP). When each AFP independently hired this insurance with an insurance company, the process was not competitive: colligated companies ended up providing the service and distortions affected competition in the market through incentives to cream-skim members, efforts to block disability claims, lack of price transparency, and the insurance contract acting as a barrier to entry. Cross-subsidies, inefficient risk pooling, and regulatory arbitrage were also present. The Chilean experience is relevant since other privatized systems with decentralized provision of this insurance may show similar problems as they mature. A centralized auction mechanism solves these market failures, but also gives raise to new challenges, such as how to design a competitive auction that attracts participation and deters collusion. Design features that were incorporated into the regulation to tackle these issues are presented here.

Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
Working Paper: Market Design for the Provision of Social Insurance: The Case of Disability and Survivors Insurance in Chile (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:jpenef:v:9:y:2010:i:03:p:421-444_99

Access Statistics for this article

More articles in Journal of Pension Economics and Finance from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().