Between-group adverse selection: Evidence from Irans’s group supplemental health insurance

Asymmetric information in insurance markets leads to adverse selection and moral hazard. The amount of asymmetric information could change over time due to learning. Unlike other insurance contracts, supplementary health insurance contracts in Iran are in group form. Therefore, between group asymmetric information might play an important role. In this article, positive correlation test is used to test presence of between group asymmetric information. Since acute hospital disease category does not have moral hazard, adverse selection is separately identified. Finally, using the temporal variation in insurance contracts, moral hazard is separated from learning. The data is a panel of insurance contracts from Asia Insurance Company, for two types of paraclinical and hospital health services, during the period of 2011-2016. Results show no asymmetric information for acute hospital disease and since there is not any moral hazard, we can conclude no between group adverse selection. For paraclinical services, we find significant evidence for asymmetric information, mainly due to moral hazard. We also found evidence of learning for insured groups.