Chapter 15 - demographic assumptions

Question 1

What does the expected future experience of policyholders depend on?

Answer 1

• the target market
• the underwriting controls applied at the start
• claims controls
• policy wording
• expected change in experience since the time of the last historical investigation to the point in time at which the assumption will apply on average

Question 2

Split for long-term health and care insurance products

Answer 2

• age
• gender
• smoker status
• occupation
• size of benefit selected
• type of benefit selected
• class of product
• individual or group
• distribution source
• region

Question 3

Social and economic influences on healthcare products

Answer 3

• changing attitude to health, greater access to healthcare services, better diagnosis of medical conditions and the availability of new medical technology
• the future plans for state welfare provision
• the economic wellbeing of the country
• inflation generally

Question 4

What does the significance of mortality assumptions depend on?

Answer 4

• non-claiming or claiming policyholders
• claims within the survival period
• policies without a death benefit

Question 5

Why are market data less useful in predicting lapse rate experience?

Answer 5

• depend on human choice (influenced by economic, political and commercial factors)
• there is much more heterogeneity in lapse rate experience between companies, reflecting differences in distribution channel, target market, product design, benefits provided etc. so data will be less relevant
• past data and future experience influenced by changes to economic environment, level of market competition and standards of customer service - these are all very difficult to allow for and to predict

Question 6

Factors that influence policyholder’s decision to lapse

Answer 6

• economic
• political
• commercial
• awareness

Question 7

The effect of lapses

Answer 7

• early lapse may cause financial loss where insufficient premiums have been received to recover the initial strain (asset share) of writing the policy
• where no surrender value is payable and a reserve (accumulated asset share) has been accumulated, a lapse will work to benefit the insurer
• the effect of lapses may be selective

Question 8

Process of determining demographic assumptions

Answer 8

1. collecting appropriate data
2. grouping the data
3. calculating the rates
4. adjusting the rates