Effect of the Yield Level, the Inflation Environment and the Pandemic on the Lapse Rates of Life Insurances

Abstract

This study examines the lapse rates of certain life insurances in relation to various economic and non-economic events, analysing empirical insurance data, in search of answers to the questions of what impact the changed yield and inflation environments and lockdowns due to Covid-19 had on the cancellation of contracts, and how sensitive policyholders are to changes in yields in the case of certain investment-type insurances. In addition to the conclusions drawn on the basis of time series data, further statistical analyses (such as Granger causality testing, contract classification with k-means clustering) contribute to a more complete picture. The effect of certain changes in the interest rate level on lapses can be detected in the case of the single premium investment-type insurance under review (especially for the higher premium classes). No similar behaviour is typical of the current premium insurances under review, and so far it has also not been possible to detect any significant relationship with lapses in connection with inflation or the lockdowns due to Covid-19.