earticle

영어

We analyze the effects of life insurance settlement on the insurer’s profit and the consumer and social welfares. We consider a one-period model in which the insurance market is monopolistic and the settlement market is competitive. Policyholders face heterogeneous liquidity risks in addition to mortality risks. Liquidity risks are introduced to address the case in which policyholders need urgent cash, leading them to surrender or settle the policies. It is assumed that the insurer cannot observe the liquidity risks nor discriminate policyholders based on the liquidity risks. It is further assumed that no costs are incurred in policy surrender or settlement. We find that the introduction of the life settlement market lowers the monopolistic rent while raising the premium. The effects on consumer welfare and social welfare are mixed. Consumer welfare increases only when the demand sufficiently increases. This finding implies that social welfare, as measured by the sum of consumer welfare and the insurer's profit, can increase if the increase in the consumer welfare is greater than the decrease in the insurer's profit. This finding is contrasted with the existing literature in which the settlement market lowers social welfare.