Do we see adverse selection in whole life and term life insurance : from economical and actuarial point ?

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This study provides empirical evidence consistent with the existence of adverse selection in the life insurance market. An analysis of micro data from more than 1.6 million automatic renewal term life insurance contracts, issued by a Japanese life insurance company, reveals that owing to medical and other selections, neither adverse selection nor moral hazard problems could not be recognized with an automatic renewal term life insurance (before renewal). However, after the renewal, adverse selection and moral hazard did occur in the subsequent 10 years. Considering intensifying price competition, a review of automatic renewal of term life insurance may be required for equal distribution of the financial burden amongst policyholders and for the financial soundness of life insurance companies.