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

Author

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  • Jean Pinquet
  • Montserrat Guillén
  • Mercedes Ayuso

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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Suggested Citation

  • Jean Pinquet & Montserrat Guillén & Mercedes Ayuso, 2011. "Commitment and Lapse Behavior in Long‐Term Insurance: A Case Study," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 78(4), pages 983-1002, December.
    • Handle: RePEc:bla:jrinsu:v:78:y:2011:i:4:p:983-1002
    DOI: j.1539-6975.2011.01420.x
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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, August.
    2. Martin Eling & Michael Kochanski, 2013. "Research on lapse in life insurance: what has been done and what needs to be done?," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 14(4), pages 392-413, August.
    3. Anne MacKay & Maciej Augustyniak & Carole Bernard & Mary R. Hardy, 2017. "Risk Management of Policyholder Behavior in Equity-Linked Life Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 661-690, June.
    4. Ruo Jia & Zenan Wu, 2019. "Insurer commitment and dynamic pricing pattern," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(1), pages 87-135, March.
    5. Kung, Ko-Lun & Hsieh, Ming-Hua & Peng, Jin-Lung & Tsai, Chenghsien Jason & Wang, Jennifer L., 2021. "Explaining the risk premiums of life settlements," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    6. Ruo Jia & Zenan Wu, 2019. "Insurer commitment and dynamic pricing pattern," The Geneva Papers on Risk and Insurance Theory, Springer;International Association for the Study of Insurance Economics (The Geneva Association), vol. 44(1), pages 87-135, March.
    7. Dalit Daily-Amir & Hansjörg Albrecher & Martin Bladt & Joël Wagner, 2019. "On Market Share Drivers in the Swiss Mandatory Health Insurance Sector," Risks, MDPI, vol. 7(4), pages 1-25, November.
    8. Huang, Hsiao-Tzu & Hwang, Yawen & Chan, Linus Fang-Shu & Tsai, Chenghsien Jason, 2024. "Value-enhancing modeling of surrenders and lapses," Insurance: Mathematics and Economics, Elsevier, vol. 119(C), pages 48-63.
    9. Marcus C. Christiansen & Martin Eling & Jan-Philipp Schmidt & Lorenz Zirkelbach, 2016. "Who is Changing Health Insurance Coverage? Empirical Evidence on Policyholder Dynamics," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(2), pages 269-300, June.
    10. Schaper, Philipp, 2017. "Under pressure: how the business environment affects productivity and efficiency of European life insurance companiesAuthor-Name: Eling, Martin," European Journal of Operational Research, Elsevier, vol. 258(3), pages 1082-1094.
    11. Abdul-Fatawu Majeed, 2020. "Accelerated Failure Time Models: An Application in Insurance Attrition [Modèles de temps de défaillance accéléré: une application dans l'attrition de l'assurance]," Post-Print hal-02953269, HAL.
    12. Lambregts, Timo R. & Schut, Frederik T., 2020. "Displaced, disliked and misunderstood: A systematic review of the reasons for low uptake of long-term care insurance and life annuities," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).

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