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Dynamic hybrid products in life insurance: Assessing the policyholders’ viewpoint

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  • Bohnert, Alexander
  • Born, Patricia
  • Gatzert, Nadine

Abstract

Dynamic hybrid life insurance products are intended to meet new consumer needs regarding stability in terms of guarantees as well as sufficient upside potential. In contrast to traditional participating or classical unit-linked life insurance products, the guarantee offered to the policyholders is achieved by a periodical rebalancing process between three funds: the policy reserves (i.e. the premium reserve stock, thus causing interaction effects with traditional participating life insurance contracts), a guarantee fund, and an equity fund. In this paper, we consider an insurer offering both, dynamic hybrid and traditional participating life insurance contracts and focus on the policyholders’ perspective. The results show that higher guarantees do not necessarily imply a higher willingness-to-pay, but that in case of dynamic hybrid contracts, a minimum guarantee level should be offered in order to ensure that the willingness-to-pay exceeds the minimum premium the insurer has to charge when selling the contract. In addition, strong interaction effects can be found between the two products, which particularly impact the willingness-to-pay of the dynamic hybrids.

Suggested Citation

  • Bohnert, Alexander & Born, Patricia & Gatzert, Nadine, 2014. "Dynamic hybrid products in life insurance: Assessing the policyholders’ viewpoint," Insurance: Mathematics and Economics, Elsevier, vol. 59(C), pages 87-99.
    • Handle: RePEc:eee:insuma:v:59:y:2014:i:c:p:87-99
    DOI: 10.1016/j.insmatheco.2014.09.003
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    References listed on IDEAS

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    Cited by:

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    2. Hambardzumyan, Hayk & Korn, Ralf, 2019. "Dynamic hybrid products with guarantees—An optimal portfolio framework," Insurance: Mathematics and Economics, Elsevier, vol. 84(C), pages 54-66.
    3. Nikolaj Moretti & Johannes Bartels, 2021. "Interaction effects between dynamic hybrid products and traditional deferred annuities in the German life insurance market," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 35(2), pages 193-224, June.
    4. Patrick Matussek, 2017. "Low interest rates and life insurance with equity insurance fund on German market (Niskie stopy procentowe a ubezpieczenia na zycie z ubezpieczeniowym funduszem kapitalowym na rynku niemieckim)," Research Reports, University of Warsaw, Faculty of Management, vol. 2(24), pages 142-149.
    5. M. Carmen Boado-Penas & Julia Eisenberg & Paul Kruhner, 2019. "Maximising with-profit pensions without guarantees," Papers 1912.11858, arXiv.org.
    6. Alexander Bohnert, 2015. "The Impact of Guarantees on the Performance of Pension Saving Schemes: Insights from the Literature," Risks, MDPI, vol. 3(4), pages 1-28, November.
    7. Boado-Penas, M. Carmen & Brinker, Leonie V. & Eisenberg, Julia & Korn, Ralf, 2023. "Managing reputational risk in the decumulation phase of a pension fund," Insurance: Mathematics and Economics, Elsevier, vol. 109(C), pages 52-68.
    8. Chen, An & Hieber, Peter & Nguyen, Thai, 2019. "Constrained non-concave utility maximization: An application to life insurance contracts with guarantees," European Journal of Operational Research, Elsevier, vol. 273(3), pages 1119-1135.
    9. Hanna, Vanessa & Hieber, Peter & Devolder, Pierre, 2021. "Mixed participating and unit-linked life insurance contracts: design, pricing and optimal strategy," LIDAM Discussion Papers ISBA 2021010, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).

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