How Does Life Settlement Affect the Primary Life Insurance Market?
AbstractWe study the effect of the life settlement market on the structure of long term contracts offered by the primary market for life insurance, as well as the effect on consumer welfare, using a dynamic model of life insurance with one sided commitment and bequest-driven lapsation. We show that the presence of life settlement affects the extent as well as the form of dynamic reclassification risk insurance in the equilibrium of the primary insurance market, and that the settlement market generally leads to lower consumer welfare. We also examine the primary insurers’ response to the settlement market when they can offer enriched contracts by specifying optimally chosen cash surrender values (CSVs).
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Bibliographic InfoPaper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 10-006.
Length: 44 pages
Date of creation: 09 Feb 2010
Date of revision:
Life insurance; dynamic insurance; secondary market;
Other versions of this item:
- Hanming Fang & Edward Kung, 2010. "How Does Life Settlement Affect the Primary Life Insurance Market?," NBER Working Papers 15761, National Bureau of Economic Research, Inc.
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-27 (All new papers)
- NEP-IAS-2010-02-27 (Insurance Economics)
- NEP-RMG-2010-02-27 (Risk Management)
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- Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2011.
"Welfare costs of reclassification risk in the health insurance market,"
Working Paper Series, Center for Fiscal Studies, Uppsala University, Department of Economics
2011:13, Uppsala University, Department of Economics.
- Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2011. "Welfare costs of reclassification risk in the health insurance market," MPRA Paper 34189, University Library of Munich, Germany.
- Yoshizawa, Takuya, 2014. "Characteristics of insurance contracts suitable to benefit value insurance settlements," 商学討究 (Shogaku Tokyu), Otaru University of Commerce, Otaru University of Commerce, vol. 64(4), pages 235-255.
- Daniel Gottlieb & Kent Smetters, 2012. "Narrow Framing and Life Insurance," NBER Working Papers 18601, National Bureau of Economic Research, Inc.
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