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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, Université Paris 10 Nanterre - (-))
Montserrat Guillén (Universitat de Barcelona -)
Mercedes Ayuso (Universitat de Barcelona -)

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Abstract

This paper presents a case study of a portfolio of individual long-term insurance contracts. We describe the risk levels, the rating structure and the implied cross-subsidies on the portfolio of a bundle of three coverages related to health, life and long-term care. We show evidence of reclassification risk through the history of disability spells. We also analyze the lapse behavior and try to give a rationale for the observed dynamics of the portfolio. Lastly, we draw conclusions regarding the design of such contracts and the difference between private and public insurance.

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Paper provided by HAL in its series Working Papers with number hal-00374303_v1.

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Date of creation: 08 Apr 2009
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Handle: RePEc:hal:wpaper:hal-00374303_v1

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

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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  1. 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. [Downloadable!] (restricted)
  2. 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. [Downloadable!] (restricted)
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  3. 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. [Downloadable!] (restricted)
  4. 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.
  5. J. Pinquet, 1997. "Experience rating through heterogeneous models," THEMA Working Papers 97-25, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  6. 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. [Downloadable!] (restricted)
  7. 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_v1, HAL. [Downloadable!]
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  8. 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. [Downloadable!] (restricted)
  9. Diamond, Peter, 1992. "Organizing the Health Insurance Market," Econometrica, Econometric Society, vol. 60(6), pages 1233-54, November. [Downloadable!] (restricted)
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