2014, Vol.25, No.1

Journal of Insurance and Finance 2023 KCI Impact Factor : 0.59

pISSN : 2384-3209
https://journal.kci.go.kr/kiri

In this paper, we demonstrate that more consumer-friendly manuals are likely to help consumers better understand insurance products. In a social experiment, two groups of participants read two different versions of insurance manuals – the current version and the consumer-friendlily revised version - for a variable annuity product, which was followed by the assessment of their understanding of the product. Together with the OLS and the propensity score matching estimation, our results suggest that, in terms of the four questions where the two groups differed significantly, the percentage of correct answers from our consumer-friendly manual group is, on average, 18-23 percentage points higher than that from the current manual group.

This paper analyzed the financial and the utility values of the reverse mortgage loan by comparing them with those of the immediate life annuities. The financial value was measured by MW ratio, and the utility value was estimated by RMEA, which is similar to the widely used AEW. First, the results from the financial analysis indicate that, if the value of the reverse mortgage loan consists of the residential value and the annuity value, then the residential value is considerably high in the reverse mortgage loan. The MW ratio varies among the house ownership types, but the MW ratio of the monthly rent type is over 1, and MW ratio of the residential value is higher than MW ratio of the annuity value in the monthly rent type. Regarding utility-based analysis, if the residential cost is ignored, then the immediate life annuity is favorable compared to the reverse mortgage loan. However, if the housing cost is assumed to be 30% of the current value of the house, then the reverse mortgage loan starts becoming a better choice than the immediate life annuity depending on the house value, financial asset, and payout types. Moreover, if the housing cost is assumed to be 50% of the current value of the house, then the reverse mortgage loan becomes a better option than the immediate life annuity for all considered cases. These findings imply that the residential value of the reverse mortgage loan has considerable benefits in lowering the longevity risk, especially for groups who expect certain housing costs.

Since its introduction to Korean market in 2002, variable annuity has recorded fast growth and has become one of the typical annuity products. However, there is a need for more expert knowledge and research on the risk management of the guaranteed minimum option that characterizes variable annuity compared to competing financial products. In this study, we suggest using equity-indexed annuity as a risk management tool for the guaranteed minimum option of variable annuity, because Ratchet option of the equity indexed annuity provides a natural hedging effect to the GMAB option of the variable annuity. Specifically, simultaneous sales of equity-indexed annuity and variable annuity products can bring a natural hedging effect to the whole portfolio. As a result of this natural hedging effect, required amount of reserves and capital can be reduced. In addition, this study shows that insurers can save costs of dynamic hedging and consequently improve profitability using this kind of portfolio.