Research On The Factors Of Life Insurance Surrender In China

In recent years, with the attention and support from government, China’s insurance industry develops rapidly, so does the premium income. At the same time, insurance companies and financial markets are increasingly closely linked. However, what’s behind the prosperity of the life insurance market is more and more serious risk issue. Insurance companies frequently go through "surrender storm", "large scale customers run on policies" and other group events. Surrender rate level is an important indicator that the CIRC use to monitor insurance companies, and an essential measure for companies to diagnose whether it is running on normal orbit. Surrender not only affects policyholders and insurance companies, but also has adverse impacts on the financial system. For the insured, not only do they lose insurance protection, but as the insured age, rate level and underwriting requirements grow if they buy insurance then. Once the customer decides to surrender, the insurance company usually refunds only part of the premium charged, and this is a direct economic loss for the insured. On the insurer’s side, surrender behavior affects the company’s financial stability and expected future profit. To the financial system,surrender has impact on the public recognition and dependence on insurance, and brings instability into the financial market.From the micro point of view, this article uses data information 46 life insurers have disclosed, to analyze microeconomic factors that affect the rate of surrender. Insurer’s found time, premium per case ratio, dividend level, return rate on investment, and new adding policy ratio are the five micro variables chosen to establish a non-balance panel data model for the different effects of these variables on surrender rate.Firstly, this article analyses the negative impacts of increasing surrender rate on insurers, policyholders, and financial market based on the introduction of China’s life insurance surrender present status and tendency. The reason why surrender appears is analyzed from two points of view: outside macro environment(mainly interest rate,unemployment rate, inflation, etc.) and inside insurer’s condition(mainly dividend rate,product structure, reliability, after-sale service, etc.). This is a theoretical analysis on what causes surrender rate.Secondly, annual data from 46 life insurance companies from year 2007 to year 2013 are used to establish ordinary unbalanced panel data model to do empirical research on individual surrender behavior. In this model, five variables are chosen: insurer’s found time,premium per case ratio, dividend level, return rate on investment, and new adding policy ratio. Findings show that: return rate on investment, premium per case ratio and dividend level have a significant impact on surrender in the life insurance industry, and surrender rate has inverse relations with these three variables. Ranked by the significance of impact on surrender rate is the following: return rate on investment, premium per case ratio,dividend level.Finally, combined empirical results with status quo of China’s life insurance industry,advice about how to decrease surrender rate is given from both life insurer and life policy’s view respectively. For life insurers, advice about asset and liability management, product management and structure, and life insurance publicity come up based on the effects from return rate of investment and dividend. For life insurance policy, since premium per case ratio and dividend level attract customers’ interest, the article brings up specific suggestions, such as develop business of pay, build bonus-malus system and stronger control on interest rate risk etc.