Analyzing the Selection Effect in the Private Korean Annuity Market

Jiyeon Yun and Hongmin Zi
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Jiyeon Yun: Department of Finance, Financial Planning, and Insurance, California State University, Northridge, Northridge, CA 91330, USA
Hongmin Zi: Department of Finance, Ewha Womans University, Seoul 03760, Korea

Sustainability, 2022, vol. 14, issue 9, 1-14

Abstract: The purpose of this study is to investigate the degree of adverse selection in the Korean individual annuity market using the money’s worth calculations. The insurers’ pricing of different annuity products reflects individual’s self-selection into products based on private information about their mortality prospects. Using payments offered for different products, money’s worth calculations were higher for younger and male annuitants, annuity with a bigger premium size and longer guarantee period, frontloaded (as opposed to level) annuity, joint (as opposed to single) annuity, tax-qualified (as opposed to non-tax-qualified) annuity, and deferred (as opposed to immediate) annuity. In a cross-country analysis, we observe that the cost of adverse selection is higher in countries with more generous social security income.

Keywords: adverse selection; private annuity; money’s worth (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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