Long-Term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection

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28 Septembre 2017
Types de publication: 
Cahier de recherche
Martin Boyer
Philippe De Donder
Claude-Denys Fluet
Marie-Louise Leroux
Pierre-Carl Michaud
Axe de recherche: 
Politiques publiques et réglementation
Long-term care insurance
adverse selection

We conduct a stated-choice experiment where respondents are asked to rate various insurance products aimed to protect against financial risks associated with long-term care needs. Using exogenous variation in prices from the survey design, and objective risks computed from a dynamic microsimulation model, these stated-choice probabilities are used to predict market equilibrium for long-term care insurance using the framework developped by Einav et al. (2010). We investigate in turn causes for the low observed take-up of long-term care insurance in Canada despite substantial residual out-of-pocket financial risk. We first find that awareness and knowledge of the product is low in the population: 44% of respondents who do not have long-term care insurance were never offered this type of insurance while overall 31% report no knowledge of the product. Although we finnd evidence of adverse selection, results suggest it plays a minimal role in limiting take-up. On the demand side, once respondents have been made aware of the risks, we finnd that demand remains low, in part because of misperceptions of risk, lack of bequest motive and home ownership which may act as a substitute.


Martin Boyer, HEC Montréal
Philippe De Donder, ESG UQAM
Claude Fluet, Université Laval
Marie-Louise Leroux, ESG UQAM
Pierre-Carl Michaud, HEC Montréal