Investigating the Broken Heart Effect

Aug. 28, 2012 - PRLog -- It is commonly said that they have died of a broken heart after a life time together, but is this actually possible?  According to some medical experts, a painful breakup, an extreme argument or experiencing the death of a loved one can elicit the release of stress hormones that can trigger a heart attack in people prone to them, induce a life-threatening arrhythmia or cause a syndrome that mimics a heart attack in otherwise healthy hearts.

That may be the medical explanation; but a recent research paper from Cass Knowledge investigated how the life insurance industry views the ‘broken heart’ effect.

The traditional assumption made in life insurance about the independence of the remaining lifetimes of a couple has come under greater scrutiny recently. In this paper, it is assumed that dependence between coupled lifetimes is of a short-term type. That is, the chance of dying increases after the death of a partner but then returns over time to levels closer to normal. This is commonly described as a broken-heart effect.

To investigate this effect, they used a North American life insurance data set of 11,454 policies to which they fitted an augmented six-state Markov model. This model splits the widowed state into a recently bereaved state and an ultimately widowed state (for males and females separately).

In line with previous studies, they found evidence that remaining lifetimes are statistically dependent; mortality rates increase significantly after the death of a spouse. Furthermore, they found evidence for short-term dependence with mortality rates increasing after the death of a spouse, but they decrease again after about a year. This effect is stronger among widowers than among widows.

Remaining lifetimes of joint lives therefore exhibit short-term dependence. The research carried out numerical work involving the pricing and valuation of typical contingent assurance contracts and of a joint life and survivor annuity. If insurers ignore dependence, or mis-specify it as long-term dependence, then significant mis-pricing and inappropriate provisioning can result.

The conventional premise in multiple life contingencies is that the remaining lifetimes of joint lives are mutually independent. Dependence between two lifetimes and its effect on insurance contracts have been investigated in several recent papers. Empirical investigations on coupled lives have shown that the assumption of independence is not realistic and can only be justified by computational convenience.

A full version of the paper ‘Investigating the Broken Heart Effect’ (http://www.cassknowledge.com/sites/default/files/article-...) is available or visit Cass Knowledge (http://www.cassknowledge.com/about-us), which provides free and full access to its world-renowned research (http://www.cassknowledge.com/research/articles/by-topic).