Data and Code for: Lapse-Based Insurance

Principal Investigator(s):  View help for Principal Investigator(s) Daniel Gottlieb, London School of Economics; Kent Smetters, University of Pennsylvania

Version:  View help for Version V1

Name File Type Size Last Modified
  0_Raw 02/27/2021 01:18:PM
  1_Preprocess 02/27/2021 01:18:PM
  2_Input 02/27/2021 01:18:PM
  3_Main 06/03/2021 06:14:PM
  4_Output 02/27/2021 01:19:PM
README.pdf application/pdf 13.7 KB 02/27/2021 08:18:AM
README.txt text/plain 3.6 KB 02/27/2021 08:18:AM

Project Citation: 

Gottlieb, Daniel, and Smetters, Kent. Data and Code for: Lapse-Based Insurance. Nashville, TN: American Economic Association [publisher], 2021. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2021-07-15. https://doi.org/10.3886/E124701V1

Project Description

Summary:  View help for Summary Most individual life insurance policies lapse, with lapsers cross-subsidizing non-lapsers. We show that policies and lapse patterns predicted by standard rational expectations models are the opposite of those observed empirically. We propose two behavioral models consistent with the evidence: (i) consumers who forget to pay premiums and (ii) consumers who understate future liquidity needs. We conduct two surveys with a large insurer. New buyers believe that their own lapse probabilities are small compared to the insurer's actual experience. For recent lapsers, forgetfulness accounts for 37.8 percent of lapses while unexpected liquidity accounts for 15.4 percent.

Scope of Project

Subject Terms:  View help for Subject Terms Life insurance; Lapsing; Mechanism design
JEL Classification:  View help for JEL Classification
      D01 Microeconomic Behavior: Underlying Principles
      G20 Financial Institutions and Services: General
      G22 Insurance; Insurance Companies; Actuarial Studies
Geographic Coverage:  View help for Geographic Coverage United States
Collection Date(s):  View help for Collection Date(s) 2/7/2018 – 3/9/2018 (Survey collection period)
Universe:  View help for Universe Life insurance policyholders, including new buyers as well as people who recently lapsed their policy.
Data Type(s):  View help for Data Type(s) administrative records data; program source code

Methodology

Response Rate:  View help for Response Rate 13% response rate for New Buyers Survey
4.9% response rate for Recent Lapsers Survey
Sampling:  View help for Sampling New Buyers Survey: LLI customers who purchased term life insurance between October 2013 and November 2017.
Recent Lapsers Survey: LLI customers who lapsed their term life insurance between January 2012 and November 2017. 
Data Source:  View help for Data Source A Large Life Insurance (LLI) company who asked to remain anonymous. As described in the paper, LLI is a large U.S. life insurer that regularly receives an A.M. Best Company rating of A++. LLI life insurance is widely marketed to the general U.S. population.
Unit(s) of Observation:  View help for Unit(s) of Observation Individual policy holders
Geographic Unit:  View help for Geographic Unit United States

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Published Versions

V1 [2021-07-15]

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