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11-02-2019 | Issue 1/2020

Empirical Economics 1/2020

Heterogeneous selection in the market for private supplemental dental insurance: evidence from Germany

Journal:
Empirical Economics > Issue 1/2020
Authors:
Jan Michael Bauer, Jörg Schiller, Christopher Schreckenberger
Important notes
We wish to particularly thank Stefan Felder and Peter Zweifel, the University of Ulm, all the participants at the 41st annual EGRIE seminar, the 2015 annual meeting of the Deutscher Verein für Versicherungswissenschaft e.V. and the 3rd World Risk and Insurance Economics Congress for comments on an earlier draft, as well as two anonymous reviewers for their helpful suggestions. We also thank the Bertelsmann Foundation for providing the Healthcare Monitor Data in cooperation with the statutory health insurance fund Barmer GEK. We gratefully acknowledge financial support from the Deutscher Verein für Versicherungswissenschaft e.V.

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Abstract

This paper analyzes the German market for supplemental dental insurance to identify selection behavior based on individuals’ private information. The rather limited underwriting by German private health insurers makes this market especially prone to selection effects. Although the standard positive correlation test does not indicate asymmetric information in this market, we conjecture that this outcome may result from sample heterogeneity when adverse and advantageous selection occur simultaneously and offset each other. Examining a large set of potential sources of selection effects, we find mainly that the holding of other supplemental health insurance policies, which is related to risk preferences, contributes to an advantageous selection in this insurance market. Our results suggest that even in the absence of a positive correlation between risk and insurance coverage, the German market for supplemental dental insurance suffers from information asymmetry, which is caused by multidimensional private information.

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