Many equity-linked life insurance products offer the possibility to surrender policies prematurely. Secondary markets for policies with surrender guarantees influence both policyholders and insurers. We show that insurers increase premiums to adjust for higher surrender rates of customers and optimized surrender behavior by investors acquiring the policies on secondary markets. Secondary markets lead to a gap in policy value between insurer and policyholder. In our model, policyholders can profit from sufficiently competitive secondary markets, but for non-competitive markets, the value gap lowers the customer's policy value substantially. Benefits drawn from secondary markets by customers increase in their willingness to access these markets.
Many equity-linked life insurance products offer the possibility to surrender policies prematurely. Secondary markets for policies with surrender guarantees influence both policyholders and insurers. We show that insurers increase premiums to adjust for higher surrender rates of customers and optimized surrender behavior by investors acquiring the policies on secondary markets. Secondary markets lead to a gap in policy value between insurer and policyholder. In our model, policyholders can profit from sufficiently competitive secondary markets, but for non-competitive markets, the value gap lowers the customer's policy value substantially. Benefits drawn from secondary markets by customers increase in their willingness to access these markets.