Understanding policyholder behaviour and its impact on life insurance products

Submitted in partial fulfillment of the requirements of the Degree BBS Actuarial ScienceThe study is on policyholder decisions and what factors affects these policyholder decisions. These decisions are traditional lapse and surrender, conversion elections, fund transfers, withdrawals for flexible premium plans, index elections and transfers between indices for indexed products. The study examines individual life insurance products from an insurance company. Policyholder decisions are affected by product and policyholder characteristics such as age of policyholder, term of policy, frequency of premium payment, sum assured, premium and the type of product and these factors are modeled using predictive modeling using generalized linear models. The GLM predicts the probability of surrender which is then compared to the observed surrender rates in the test data. The paper also looks at the interest rate and emergency fund hypothesis that explain lapse/surrender behavior