The impact of economic changes on disability income insurance and health in australia

Abstract

This thesis empirically examines the impact of economic changes on: i. the health of the general Australian population, and ii. the claim incidence experience of the Australian Disability Income Insurance (DII) business. Changes in economic conditions have been captured via movements in the unemployment rate. Changes in health by the following two indicators: a. mortality rate, and b. per capita general physician (GP) visits. In many countries it has been established that short-run cyclical patterns in mortality are associated with economic fluctuations. In Chapter 2, an aggregate state level panel data analysis is used to investigate the general pattern of cyclical mortality in Australia for the period 1985-2008. Employing a fixed effects regression methodology, we show that there is a significant counter-cyclical pattern of mortality (mortality increases during economic contractions) in the general Australian population. Evidence in the literature suggests that the pattern of cyclical mortality experienced in other countries is varied. Drawing from this literature, it is argued that one reason for the observed counter-cyclical mortality in Australia is the relatively high level of social security expenditure. In Chapter 3, a poisson fixed effects analysis shows that, in Australia, over the period 1994-2010, per capita GP visits increase with economic expansions. This may indicate that self-perceived morbidity in Australia is pro-cyclical in nature. At first glance, while this result appears to be in contradiction with counter-cyclical mortality (established in Chapter 2), it is argued that the various financial and psychological factors that cause a reduction in GP visits during economic downturns may be a factor in explaining the increase in mortality observed in Chapter 2. Practitioners of DII commonly believe that DII claims experience is highly correlated with economic movements. In Chapter 4, using claims incidence data from Australian DII business for the period 1986-2001, and a conditional model, it is found that the incidence of claims significantly increases with increasing unemployment, illustrating a counter-cyclical pattern of claims incidence. Moreover, a multinomial logit analysis on cause of claim shows that the probability of a new claim arising from accidents significantly increases with increasing unemployment. The results suggest that the counter-cyclical pattern of claim incidence may stem from increasing claims for minor causes amongst the insured population. Our results are important from the perspective of policy makers and insurance companies. For example, to a policy maker, evidence of counter-cyclical mortality and pro-cyclical GP visits provides insights on the impact of economic changes on health. This may lead to further research in order to isolate the causes of these relationships and quantify the social costs associated with tackling the issues. From the perspective of an insurer, the counter-cyclical patterns of mortality and DII claims may help them to incorporate appropriate premium loadings and capital reserves in anticipation of economic downturns. Show more