One key aspect of the research is the test of whether sales of insurance products correlate with the existing unemployment rate. Another key assertion is that actuaries can use statistics to predict future persistency of individual life insurance products. This analysis is based on historical data since the 1990s. Some of the highlights from this research include the following:
•Evidence exists that supports a correlation between the sale of many insurance products and underlying unemployment rates.
•Statistics support a weak relationship between first-year lapse rates on life insurance products and the level of unemployment in the economy.
•There is little variation of life insurance lapse rates beyond the fifth policy year, regardless of the economic environment.
•Techniques to develop an unemployment incidence table are provided.
•Suggestions on pricing, valuation, stress testing and best practices around the unemployment risk are discussed.
Section 3 provides an overview of the government-mandated social programs surrounding unemployment insurance for individuals who have been involuntarily terminated from their jobs. Both U.S. and Canadian programs are discussed in the summary. Links to various statistics and government tables are provided within the Introduction as well as in the bibliography.
Section 4 provides various definitions of unemployment from the U.S. Bureau of Labor Statistics (BLS). Historical incidence rates of nationwide unemployment are provided for the period from 2004 to 2014. Readers can reference the BLS website for additional data by age, sex, region etc.
Sections 5 and 6 discuss the Consolidated Omnibus Reconciliation Act (COBRA) and the Affordable Care Act (ACT) as they pertain to unemployment benefits. Section 7 describes the Canadian landscape for employee benefits during unemployment.
Section 8 describes past research, while Section 9 introduces the business cycle that becomes a key driver of the sample incidence rates in Section 10. Section 11 then goes on to explain the current private programs available in the marketplace. Section 12 highlights potential opportunities for new product design that advance thinking on current product offerings. Sections 13 and 14 point out some considerations for pricing and valuation of an unemployment insurance product.
Section 15 delivers the key research within the report. There, readers can find data, statistics and charts on the correlations between the unemployment rate and historical sales of various insurance products. The SOA LIMRA Persistency Studies in Section 16 were used as a benchmark to analyze the relationship between unemployment rates and life insurance persistency. The focus was on identifying relationships between first-year lapse rates and unemployment rates.
Section 17 highlights stress testing considerations with regard to this risk, and Section 18 incorporates a number of author recommendations.
Section 19 summarizes the report and provides thoughts and recommendations for further consideration and research. The bibliography provides a listing of various documents and website links used to obtain information and data for research.
Keywords: Unemployment, Dynamic Risk Modeling
