Analysis of Adverse Selection in Iranian Life Insurance Market Using Logit Models

The purpose of this study is to assess the existence of adverse selection in Life Insurance Market in Iran using demographic, social, and economic factors as well as other factors affecting risk level of people using Household Expenditure and Income Survey data in Iran. This study was conducted to evaluate the effect of independent variables including age, gender, education, marital status, job status, family size, income status, investment level, future perspective of the person (having pension insurance and accident insurance) and future health of the person on the probability of demanding life insurance. In the second part of the study, the dependent variable is categorized in three groups based on method of life insurance payment in insured and uninsured households. Ordered Logit is estimated but since the parallel regression lines assumption is violated generalized Logit Model is used to assess the marginal effects. Evaluation of the model coefficients indicates that age and high risk jobs concur with the existence of adverse selection in the life insurance market while other variables such as education, tobacco use, sport and religious expenses, treatment expenditures and income reduce adverse selection in life insurance market.