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Commitment and Lapse Behavior in Long-Term Insurance: A Case Study

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Author Info

  • Jean Pinquet

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, UP10 - Université Paris 10, Paris Ouest Nanterre La Défense - Université Paris X - Paris Ouest Nanterre La Défense - Ministère de l'Enseignement Supérieur et de la Recherche Scientifique)

  • Montserrat Guillén

    (UB - Universitat de Barcelona - Universitat de Barcelona)

  • Mercedes Ayuso

    (UB - Universitat de Barcelona - Universitat de Barcelona)

Abstract

This paper presents a case study of a portfolio of individual long-term insurance contracts sold by a Spanish mutual company. We describe the risk levels, the rating structure and the implied cross-subsidies on a portfolio of policies providing health, life and long-term care insurance. We show evidence of reclassification risk through the history of disability spells. We also analyze the lapse behavior and seek to provide a rationale for the portfolio's dynamics. Lastly, we draw conclusions regarding the design of such contracts.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00374303.

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Date of creation: 2011
Date of revision:
Publication status: Published, The Journal of Risk and Insurance, 2011, 78, 4, 983-1002
Handle: RePEc:hal:journl:hal-00374303

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00374303
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Related research

Keywords: Commitment; reclassification risk; long-term insurance.;

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References

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  1. Brown, Jeffrey R. & Finkelstein, Amy, 2007. "Why is the market for long-term care insurance so small?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1967-1991, November.
  2. Kunreuther, Howard & Pauly, Mark, 1985. "Market equilibrium with private knowledge : An insurance example," Journal of Public Economics, Elsevier, vol. 26(3), pages 269-288, April.
  3. Glenn Daily & Igal Hendel & Alessandro Lizzeri, 2008. "Does the Secondary Life Insurance Market Threaten Dynamic Insurance?," American Economic Review, American Economic Association, vol. 98(2), pages 151-56, May.
  4. Dionne, Georges & Doherty, Neil A, 1994. "Adverse Selection, Commitment, and Renegotiation: Extension to and Evidence from Insurance Markets," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 209-35, April.
  5. Jean Pinquet & Guillén Montserrat, 2008. "Long-Term Care: Risk Description of a Spanish Portfolio and Economic Analysis of the Timing of Insurance Purchase," Post-Print hal-00343104, HAL.
  6. Wenan Fei & Claude Fluet & Harris Schlesinger, 2007. "Uncertain Bequest Needs and Long-Term Insurance Contracts," Cahiers de recherche 0742, CIRPEE.
  7. J. Pinquet, 1997. "Experience rating through heterogeneous models," THEMA Working Papers 97-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  8. Michael K. McShane & Larry A. Cox, 2009. "Issuance Decisions and Strategic Focus: The Case of Long-Term Care Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 87-108.
  9. Jeffrey R. Brown & Amy Finkelstein, 2009. "The Private Market for Long-Term Care Insurance in the United States: A Review of the Evidence," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 5-29.
  10. Igal Hendel & Alessandro Lizzeri, 2003. "The Role Of Commitment In Dynamic Contracts: Evidence From Life Insurance," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 299-327, February.
  11. David C. Webb, 2009. "Asymmetric Information, Long-Term Care Insurance, and Annuities: The Case for Bundled Contracts," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 53-85.
  12. Pauly, Mark V & Kunreuther, Howard & Hirth, Richard, 1995. "Guaranteed Renewability in Insurance," Journal of Risk and Uncertainty, Springer, vol. 10(2), pages 143-56, March.
  13. H. J. Smoluk, 2009. "Long-Term Disability Claims Rates and the Consumption-to-Wealth Ratio," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 109-131.
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Cited by:
  1. Dorothea Diers & Martin Eling & Christian Kraus & Andreas Reuß, 2012. "Market-consistent embedded value in non-life insurance: how to measure it and why," Journal of Risk Finance, Emerald Group Publishing, vol. 13(4), pages 320-346.
  2. Christiansen, Marcus & Eling, Martin & Schmidt, Jan-Philipp & Zirkelbach, Lorenz, 2012. "Who is Changing Health Insurance Coverage? Empirical Evidence on Policyholder Dynamics," Working Papers on Finance 1223, University of St. Gallen, School of Finance.
  3. Eling, Martin & Kochanski, Michael, 2012. "Research on Lapse in Life Insurance – What Has Been Done and What Needs to Be Done?," Working Papers on Finance 1224, University of St. Gallen, School of Finance.

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