The relationship between the macroeconomic and demographic factors and the demand for and lapsation of life insurance in Malaysia and the United States
Economic environments have an effect on both the growth and lapsation of life insurance business. This thesis is undertaken in order to seek evidence of the significance of and relationship between specific macroeconomic and demographic factors and the demand for and lapsation of life insurance in the context of Malaysia and the United States (US). A dynamic, general-to-specific (Gets) approach is adopted in order to analyse the data. The general model (GUM) is formulated as an ADL(l,l) model to be subject to simplification. PcGets, a computer automated software for econometric model selection, which is capable of implementing the reduction subject to retaining congruence, is used to facilitate the analysis. The major findings show that, for Malaysia, the demographic factor, the change in total fertility rate in the previous period (i.e. positive and significant), is a vitally important factor in connection with life insurance demand (measured by number, by amount and by premium). Income and stock market return are important factors affecting the consumers' ability to purchase life insurance (in terms of amount and premium). The savings deposit rate is found to be related significantly to new life insurance business (by amount and by premium) but savings deposits seem not to be a competing savings instrument to life insurance. The inflation rate appears not to be an important factor affecting new life insurance business (by amount and by premium) but a high insurance cost tends to discourage the purchasing of life insurance (by number, by amount and by premium). Meanwhile, for lapsation of life insurance, both the forfeiture and surrender rates appear to be affected by the emergency fund effect with respect to the performance of the stock market in the previous period. Only fixed deposit rate is found to have the intended (positive) interest rate effect on surrender rate. The policyholders tend to surrender their life policies in favour of other investments that promise a better value for money in order to preserve their purchasing power in an environment of rising inflation rate. When the costs of obtaining insurance protection become more expensive, the forfeiture rate tends to be lower. The demographic factors tend to have a lagged influence on both the forfeiture and surrender rates. On the other hand, for the comparative study of Malaysia and the US, broadly speaking, the inflation rate, crude death rate and total fertility rate are the three factors that appear to be associated significantly with life insurance business in force (measured by number and by amount) in both Malaysia and the US. The surrender rates in Malaysia and the US are affected by a completely different set of factors. The theSiS concludes with some suggestions for useful areas for future research.