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What Policy Features Determine Life Insurance Lapse? An Analysis of the German Market

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  • Martin Eling
  • Dieter Kiesenbauer

Abstract

type="main" xml:lang="en"> With the largest data set ever used for this purpose (covering more than 1 million contracts), we analyze the impact of product and policyholder characteristics on lapse in the life insurance market. The data are provided by a German life insurer and cover two periods of market turmoil that we incorporate into our proportional hazards and generalized linear models. The results show that product characteristics such as product type or contract age and policyholder characteristics such as age or gender are important drivers for lapse rates. Our findings improve the understanding of lapse drivers and might be used by insurance managers and regulators for value- and risk-based management.

Suggested Citation

  • Martin Eling & Dieter Kiesenbauer, 2014. "What Policy Features Determine Life Insurance Lapse? An Analysis of the German Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(2), pages 241-269, June.
    • Handle: RePEc:bla:jrinsu:v:81:y:2014:i:2:p:241-269
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    Cited by:

    1. Juan Pablo Atal & Hanming Fang & Martin Karlsson & Nicolas R. Ziebarth, 2019. "Exit, Voice, or Loyalty? An Investigation Into Mandated Portability of Front‐Loaded Private Health Plans," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 86(3), pages 697-727, September.
    2. 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.
    3. Siti Nurasyikin Shamsuddin & Noriszura Ismail & Nur Firyal Roslan, 2022. "What We Know about Research on Life Insurance Lapse: A Bibliometric Analysis," Risks, MDPI, vol. 10(5), pages 1-19, May.
    4. Mark Kiermayer, 2021. "Modeling surrender risk in life insurance: theoretical and experimental insight," Papers 2101.11590, arXiv.org, revised Aug 2021.
    5. Kubitza, Christian & Grochola, Nicolaus & Gründl, Helmut, 2021. "Life insurance convexity," ICIR Working Paper Series 42/21, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    6. Yves Staudt & Joël Wagner, 2022. "Factors Driving Duration to Cross-Selling in Non-Life Insurance: New Empirical Evidence from Switzerland," Risks, MDPI, vol. 10(10), pages 1-20, September.
    7. Renuka Sane & Susan Thomas, 2020. "From Participation To Repurchase: Low Income Households And Micro‐insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(3), pages 783-814, September.
    8. 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.
    9. Gemmo, Irina & Götz, Martin, 2016. "Life insurance and demographic change: An empirical analysis of surrender decisions based on panel data," SAFE Working Paper Series 240, Leibniz Institute for Financial Research SAFE.
    10. Christian Knoller & Gunther Kraut & Pascal Schoenmaekers, 2016. "On the Propensity to Surrender a Variable Annuity Contract: An Empirical Analysis of Dynamic Policyholder Behavior," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(4), pages 979-1006, December.
    11. Berdin, Elia & Gründl, Helmut & Kubitza, Christian, 2017. "Rising interest rates, lapse risk, and the stability of life insurers," ICIR Working Paper Series 29/17, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    12. 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).
    13. Gemmo, Irina & Götz, Martin, 2016. "Life insurance and demographic change: An empirical analysis of surrender decisions based on panel data," ICIR Working Paper Series 24/16, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    14. Mathias Valla & Xavier Milhaud & Anani Ayodélé Olympio, 2023. "Including individual Customer Lifetime Value and competing risks in tree-based lapse management strategy," Working Papers hal-03903047, HAL.
    15. Nolte, Sven & Schneider, Judith C., 2017. "Don’t lapse into temptation: a behavioral explanation for policy surrender," Journal of Banking & Finance, Elsevier, vol. 79(C), pages 12-27.
    16. Kamille Sofie T{aa}gholt Gad & Jeppe Juhl & Mogens Steffensen, 2014. "Reserve-Dependent Surrender," Papers 1412.1991, arXiv.org.
    17. Fabio Baione & Davide Biancalana & Paolo Angelis, 2021. "An application of Sigmoid and Double-Sigmoid functions for dynamic policyholder behaviour," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(1), pages 5-22, June.
    18. Chiang, Chia-Chun & Niehaus, Greg, 2024. "Market discipline and policy loans," Journal of Banking & Finance, Elsevier, vol. 159(C).
    19. Lu Yu & Jiang Cheng & Tzuting Lin, 2019. "Life insurance lapse behaviour: evidence from China," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 44(4), pages 653-678, October.
    20. 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.
    21. 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.
    22. Srbinoski Bojan & Strozzi Fernanda & Poposki Klime & Born Patricia H., 2020. "Trends in Life Insurance Demand and Lapse Literature," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 14(2), pages 1-46, July.

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