Chapter 15 Demographic assumptions Flashcards Preview

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Flashcards in Chapter 15 Demographic assumptions Deck (11):

The process of determining demographic assumption entails:

-Collecting appropriate data
-grouping the data
-calculating the rates
-adjusting the rates


Collecting the appropriate data

-data would relate to an appropriate period of year, such that volume is adequate,
-but excessive heterogeneity due to changes over time is not introduced


Grouping the data

-divide data into relevant homogenous groups
-subject to adequate levels of data in each cell


Calculating rates

-in some cases rates will be based on an adjustment to a standard table,
-others to exposed to risk techniques may be used


Adjusting the rates

-adjustments are made if a class of lives are expected to have experience different to that which observed from the data.
-this could occur due to a change in the target market or distribution channel.
-in most cases morbidity, mortality parameters will be based on an adjustment to rates from a standard table.


Determining claims incidence rates and recovery rates

-Insurer's own data is likely to be most relevant source of data
-data should be grouped into homogenous groups subject to credibility
-legislation may restrict use of certain factors.
-Allowance should be made for trends. Key social & economic influences include:
-changing attitudes to health
-State benefits
-economic situation/wellbeing of the country
-high inflation will impact renewal premiums

-medical advance should be allowed for in the rates.
-claim amount assumptions are important for indemnity cover.
-Claim recovery rates are important under LTCI benefit will cease if policyholder recovers form sickness.


How are claims incidence rates derive for LTCI, CI, PMI ? eg separate rates vary by?

-single rates will be derived for LTCI
-Separate rates for different illnes for CI insurance eg heart attack, cancer, stroke, TPD, etc
-combining these separate rates is not appropriate for tiered benefits
-different claim incidence rates for different treatments for PMI.


What factors are typically used for long-term health & care?

-smoker status
-size of benefit selected
-class of product
-individual or group
-distribution source


formula for calculating incident rates:CI

i(x,t,j) = a(t,j)*i(x,j,0)
where a is the t-year projection factor for disease j.


Demographic assumptions: Mortality

-Mortality rates should be taken from recent experience of a credible body of policyholder for same contract.

-The process of deriving mortality assumptions is similar to that of deriving claim incidence and recovery rates.
-Mortality rates are important for:
-claims in payment under LTCI
-for accelerated CI insurance
-within the survival period for stand-alone CI insurance

-For claims in payment, the mortality assumption is less important pre-claim, unless a significant death benefit is provided.


Demographic assumptions: Lapse rates

-The company's own data is likely to be the main source of data.
-Market & reinsurers' data may also be used however population data will no exist.
-Company's own set of lapse rates depends on distribution methods and after-sale service.

-The commercial and economic environment is important.

-data should be grouped by distribution type.

-Lapse rates are more important when:
-they occur early in the policy term, when a financial loss would be made.
-a surrender value is payable (where a surrender benefit is payable and a reserve has been accumulated would work in insurer's favour)
-lapse is selective, leaving a worsening propensity to claim amount those remaining
-there is a lapse and re-entry risk
-this occurs if premiums are cheaper at later age therefore policyholders lapse then re-enter at a lower premium. Essentially in-force is still the same but at lower profitability.