Beyond death: The impact of a population-wide health shock on life insurance

Chunli Cheng

The North American Journal of Economics and Finance, 2022, vol. 63, issue C

Abstract: Population-wide health shocks, for example, pandemics, affect life insurance owners beyond their health impact. This paper considers joint impacts of their surrender behavior adaptions and mortality rise following a population-wide health shock on insurance pricing. We build a model that captures both more surrenders of contracts to meet unexpected liquidity needs and less financially beneficial surrenders to keep insurance protection after the shock. Unlike the systemic mortality rise impact that turns out to be negligible, we find that policyholders’ surrender behavior adaptions substantially devalue policies with increasing emergency surrenders being the main driver. Regulatory solvency protection partly restrains the devaluation.

Keywords: Systemic mortality rise; Surrender behavior adaptions; Bounded rationality; Insurance regulation (search for similar items in EconPapers)
JEL-codes: G22 G28 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:63:y:2022:i:c:s1062940822001589

DOI: 10.1016/j.najef.2022.101823

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