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The Impact of Changes to the Unemployment Rate on Australian Disability Income Insurance Claim Incidence

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  • Gaurav Khemka

    (Research School of Finance, Actuarial Studies and Statistics, Building 26C, Kingsley Street, Australian National University, Canberra, ACT 2601, Australia)

  • Steven Roberts

    (Research School of Finance, Actuarial Studies and Statistics, Building 26C, Kingsley Street, Australian National University, Canberra, ACT 2601, Australia)

  • Timothy Higgins

    (Research School of Finance, Actuarial Studies and Statistics, Building 26C, Kingsley Street, Australian National University, Canberra, ACT 2601, Australia)

Abstract

We explore the extent to which claim incidence in Disability Income Insurance (DII) is affected by changes in the unemployment rate in Australia. Using data from 1986 to 2001, we fit a hurdle model to explore the presence and magnitude of the effect of changes in unemployment rate on the incidence of DII claims, controlling for policy holder characteristics and seasonality. We find a clear positive association between unemployment and claim incidence, and we explore this further by gender, age, deferment period, and occupation. A multinomial logistic regression model is fitted to cause of claim data in order to explore the relationship further, and it is shown that the proportion of claims due to accident increases markedly with rising unemployment. The results suggest that during periods of rising unemployment, insurers may face increased claims from policy holders with shorter deferment periods for white-collar workers and for medium and heavy manual workers. Our findings indicate that moral hazard may have a material impact on DII claim incidence and insurer business in periods of declining economic conditions.

Suggested Citation

  • Gaurav Khemka & Steven Roberts & Timothy Higgins, 2017. "The Impact of Changes to the Unemployment Rate on Australian Disability Income Insurance Claim Incidence," Risks, MDPI, vol. 5(1), pages 1-18, March.
    • Handle: RePEc:gam:jrisks:v:5:y:2017:i:1:p:17-:d:93048
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    References listed on IDEAS

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    1. Jean-Philippe Boucher & Michel Denuit & Montserrat Guillén, 2007. "Risk Classification for Claim Counts," North American Actuarial Journal, Taylor & Francis Journals, vol. 11(4), pages 110-131.
    2. HJ Smoluk & Bruce H. Andrews, 2009. "Group Long-Term Disability Insurance Claims and the Business Cycle," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 32(2), pages 154-172.
    3. Brooker, Ann-Sylvia & Frank, John W. & Tarasuk, Valerie S., 1997. "Back pain claim rates and the business cycle," Social Science & Medicine, Elsevier, vol. 45(3), pages 429-439, August.
    4. Antonio, Katrien & Frees, Edward W. & Valdez, Emiliano A., 2010. "A Multilevel Analysis of Intercompany Claim Counts," ASTIN Bulletin, Cambridge University Press, vol. 40(1), pages 151-177, May.
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    2. Phi-Hung Nguyen & Jung-Fa Tsai & Ihsan Erdem Kayral & Ming-Hua Lin, 2021. "Unemployment Rates Forecasting with Grey-Based Models in the Post-COVID-19 Period: A Case Study from Vietnam," Sustainability, MDPI, vol. 13(14), pages 1-27, July.

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