Lapse tables for lapse risk management in insurance: a competing risk approach

Abstract

This paper deals with the crucial problem of modeling policyholders’ behaviours in life insurance. We focus here on the surrender behaviours and model the contract lifetime through the use of survival regression models. Standard models fail at giving acceptable forecasts for the timing of surrenders because of too much heterogeneity, whereas the competing risk framework provides interesting insights and more accurate predictions. Numerical results follow from using Fine and Gray model (J Am Stat Assoc 94(446):496–509, 1999) on an insurance portfolio embedding Whole Life contracts. Through backtests, this framework reveals to be quite efficient and recovers the empirical lapse rate trajectory by aggregating individual predicted lifetimes. These results could be particularly useful to design future insurance product. Moreover, this setting allows to calibrate experimental lapse tables, simplifying the lapse risk management for operational teams.