Document Type : Original Research Paper

Authors

• Gh. Mahdavi
• R. Ofoghi
• M. Abed

Department of Insurance Management, Eco Insurance Institute of Higher Education, Allameh Tabataba’i University, Tehran, Iran

Abstract

Investigating and analyzing the concept and behavior of the surrendering of life insurance policies and their effective factors is very important for the policyholders, insurers and legislators. Liquidity and profits of insurers are affected by marketing and acquisition costs, adverse selection and surrender values of life insurance policies. Therefore, surrendering of life insurance policies is considered as a risk for the insurance company and this risk should be carefully studied, evaluated, examined and managed.
The phenomenon of Dynamic Adverse Selection is the result of Asymmetric Information during the time. Such adverse selection indicates that the lower-risk individuals are more likely to surrender a policy during the period of contract. This article while questioning this theory, has examined the relationship between the level of individual risk aversion and their desire to surrender the life insurance policies.




The results indicated that the risk aversion affect the amount of surrender values of the life insurance policies through factors such as marital status, gender and age. Also, by increasing the medical rates (health status at the time of issuance), the premium and initial amounts of death benefits of life insurance policies and the surrender rates will increase and by increasing the duration of insurance policies and the number of installments, the surrender rates will decrease. Respect to the result that people with high risk aversion (low risk individuals) has surrendered less than those with low risk aversion level (high risk individuals), the Iranian life insurance has faced with Dynamic Advantageous Selection. The relationship between the surrendering and medical rates, which represents the risk level of an individual's health status, confirms the existence of Dynamic Advantageous Selection.

Keywords

• Asymmetric information
• Dynamic adverse selection
• Dynamic advantageous selection
• Risk aversion
• Surrender