Adverse selection and underwriting in life insurance
Why might people holding individual coverage look no riskier — or even less risky — than nonholders, even if higher-risk people apply more often?
This exercise asks what a researcher can infer from coverage and later deaths, then reveals one possible mechanism in a fictional population. It is not a replication or estimate from either paper below.
The Yelowitz lens
Research: Harris and Yelowitz (2014) find no compelling adverse-selection evidence in a broad age cohort using life-insurance holdings linked to death records. Their study also examines new purchases and lapses; it does not observe applications or underwriting. Underwriting is one possible explanation, not a finding identified by that paper.
Harris, Yelowitz, Talbert, and Davis (2023) use university payroll and health-claims data and find worse-health employees are more likely to elect supplemental group coverage. Automatic basic employer coverage is a different margin.
Public communication: a February 2021 coauthored IZA commentary and June 2021 journalist coverage in The Wall Street Journal discuss COVID-era insurer offerings, a different question. Teaching focus here: the stage and sample you observe change the comparison you can make.
Main exercise · individual term
Where does the sample change?
The idea: application, underwriting, acceptance, and holding are different stages. A comparison among holders and nonholders does not expose the risk mix of applicants.
Loading the fictional lesson data…
The exact numbers are in the tables immediately below.
| Coverage status | People | Deaths in window | Death share |
|---|
| Age band | Holders: deaths / people | Nonholders: deaths / people |
|---|
Fictional outcome window: as defined in the data dictionary. The 2014 SIPP study used 1990–1991 panels linked to deaths through 1996, with at most about six years of follow-up from panel start. This table does not reproduce its observation window or regressions.
| Hidden risk | Population | Applied | Approved / applied | Held / approved (accepted offer) | Deaths among holders |
|---|
Interpret the difference
The synthetic choice rule uses latent risk as a shortcut for risk-related information or behavior available to the person; it does not mean people know their exact mortality type.
Ask whether higher-risk fictional people applied more often, where the composition changed, and what the researcher could have learned without seeing applications. The screen in this simulation is a candidate mechanism; the 2014 paper did not identify it as the cause of its finding.
These rows are designed to make the mechanism visible. Any small death count is unstable; do not use it for significance claims, real mortality rates, or policy forecasts. A positive coverage–death association would not automatically prove private information; a zero or negative association among holders would not prove applicants were low risk.
Inspect a fictional person (oracle audit slice)
These 50 rows are the first 25 higher-risk and first 25 lower-risk generated records, kept for arithmetic checks. They are not a sample of the researcher extract and have a different risk mix from the population.
Second setting · employer supplemental
What can group records show?
Loading fictional group comparison…
The group comparison uses synthetic pre-decision claims burden and supplemental election among eligible employees. The proxy marks at least two generated claims in the two years before the 2023 decision; it is not a Charlson score or an estimate from the paper. Death is not the group outcome. Basic employer coverage is automatic under the fictional plan; supplemental coverage is an employee choice.
Basic coverage rule loading…
| Age band | At least two events: electors / eligible | Zero or one event: electors / eligible |
|---|
| Observed claims-health group | Eligible employees | Elected supplemental | Election share |
|---|
The fictional plan grants a fixed basic benefit and $100,000 of guaranteed-issue supplemental coverage. The studied university instead provided automatic basic coverage of one times salary. New hires could elect supplemental coverage without evidence of insurability up to the applicable three-times-salary and $375,000 limits. Existing supplemental holders could generally add one salary multiple during annual enrollment without new evidence while staying within plan limits. Its premiums varied across five-year age bins, and coverage was generally tied to employment, with continuation options. This fictional view does not estimate price sensitivity or welfare. A claims proxy is not hidden true risk. None of these numbers are the paper's estimates.
The fictional decision year is 2023; the paper's university payroll and health-claims panel covers 2013–2018. The panel illustrates a related comparison, not that study's sample or estimates.
Inspect the synthetic data
Version and seed loading…
The observed extracts intentionally omit hidden risk, private news, applications, and underwriting fields not established in the source studies. In particular, the group researcher-style CSV includes issued supplemental coverage but omits attempted requests and EOI pass/fail outcomes. The oracle file is explicitly fictional and retains those generated fields for model inspection. The in-page reveal is an instructional sequence, not a security boundary: the full fictional truth is also available in its oracle download. The 50-row audit file is a worked checksum, not a statistically powered sample.
Published evidence and related work
- Harris and Yelowitz (2014), Is there adverse selection in the life insurance market? — individual coverage, purchases, lapses, and later death. Application and underwriting stages are unobserved.
- Harris, Yelowitz, Talbert, and Davis (2023), Adverse selection in the group life insurance market — health claims and elected supplemental employer coverage; employees generally did not increase coverage after severe illness.
- Related companion topic: COVID-era term-life prices and offerings — insurer quotes and offers, a different question from applicant selection. The April 11, 2023 IFID talk concerned this work, not the later 2023 group result. No talk slides or recording are embedded in this lesson.
- Harris, Yelowitz, and Courtemanche, IZA World of Labor commentary (February 2021) — coauthored public writing about COVID-era offerings, not evidence for the 2023 group result.
- Telis Demos, The Wall Street Journal coverage (June 2021) — journalist-authored coverage of the COVID-related research, not a Yelowitz op-ed.