Creating Customer Value in Participating Life Insurance
Gatzert N, Holzmüller I, Schmeiser H (2012)
Publication Language: English
Publication Type: Journal article, Original article
Publication year: 2012
Journal
Publisher: Wiley-Blackwell
Book Volume: 79
Pages Range: 645-670
Journal Issue: 3
DOI: 10.1111/j.1539-6975.2011.01453.x
Abstract
The value of a life insurance contract may differ depending on whether it is looked at from the customer's point of view or that of the insurance company. We assume that the insurer is able to replicate the life insurance contract's cash flows via assets traded on the capital market and can hence apply risk-neutral valuation techniques. The policyholder, on the other hand, will take risk preferences and diversification opportunities into account when placing a value on that same contract. Customer value is represented by policyholder willingness to pay and depends on the contract parameters, that is, the guaranteed interest rate and the annual and terminal surplus participation rate. The aim of this article is to analyze and compare these two perspectives. In particular, we identify contract parameter combinations that-while keeping the contract value fixed for the insurer-maximize customer value. In addition, we derive explicit expressions for a selection of specific cases. Our results suggest that a customer segmentation in this sense, that is, based on the different ways customers evaluate life insurance contracts and embedded investment guarantees while ensuring fair values, is worthwhile for insurance companies as doing so can result in substantial increases in policyholder willingness to pay.
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Switzerland (CH)How to cite
APA:
Gatzert, N., Holzmüller, I., & Schmeiser, H. (2012). Creating Customer Value in Participating Life Insurance. Journal of Risk and Insurance, 79(3), 645-670. https://dx.doi.org/10.1111/j.1539-6975.2011.01453.x
MLA:
Gatzert, Nadine, Ines Holzmüller, and Hato Schmeiser. "Creating Customer Value in Participating Life Insurance." Journal of Risk and Insurance 79.3 (2012): 645-670.
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