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

Gaurav Khemka, Steven Roberts and Tim Higgins ()
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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

Risks, 2017, vol. 5, issue 1, 1-18

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.

Keywords: actual-over-expected; counter-cyclical claims; disability income insurance; hurdle model; unemployment rate (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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