This study examines whether underwriting methods—representation, medical examination, extra premiums, and coverage—effectively mitigate adverse selection using data from an insurance company. Regarding representation, we focus on statements disclosing pre-existing medical conditions. Our findings show that for insured individuals with claims, claim costs are higher for those with pre-existing conditions or who require medical examinations. These individuals are also charged extra premiums. However, their loss ratios do not significantly differ from those without pre-existing conditions or medical examination requirements, possibly due to extra premiums. A quasi-difference-in-differences (DID) analysis confirms that extra premiums significantly lower the loss ratio of high-risk insureds, indicating that extra premiums serve as an effective underwriting mechanism. Lastly, insured individuals with pre-existing conditions receive lower coverage than those without, a finding that contrasts with existing literature. Finally, using the method introduced by Chiappori and Salanie (2000), we find a statistically significant positive correlation between the residuals of coverage and claim costs (loss ratio), suggesting strong evidence of adverse selection. Overall, the evidence suggests that underwriting effectively mitigates adverse selection.
