Disability Income Insurance: Actuarial Flashcards
1
Q
Challenges for pricing DI insurance (2)
A
- Lack of substantial and reliable data
2. Estimating claim cost is very subjective
2
Q
Available DI Morbidity Data (5)
A
- 1985 CIDA table for ind
- SOA group LTD table
- Social Security morbidity data
- 1975 SOA group LTD study
- 1987 Disability income study
3
Q
Variable factors associated with DI (3)
A
- Pricing variables include subjective variables that require judgement to apply (i.e. motivation and stability factors)
- Subjective factors impacted by changes in the environment and behavior
- Morbidity experience takes many years to emerge in order to determine accuracy of assumptions
4
Q
Pricing challenges for DI policies (3)
A
- Ability to adjust pricing assumptions based on social and econ changes
- Need to understand cyclical nature of business - clms better than expected in good econ times
- Do not ease assumptions when economy and experience is favorable unless warranted by experience studies
5
Q
Reasons that cause inappropriate easing or tightening of assumptions (4)
A
- Lack of mature experience data
- Actuaries and UW may have inappropriate experience in DI pricing
- Competitive pressures
- Steep claim cost curve for DI (i.e. immature nature of the DI)
6
Q
Pricing factors for DI pricing (6)
A
- Morbidity
- Persistency
- Expenses - allocation of overhead expenses and taxes
- Interest rate assumptions
- Variation in premium volume by demographics (occupation class, age) and product type
- Profit margin
7
Q
Reasons higher contingency margin required for DI relative to life (for profit margin) (4)
A
- Volatility of block
- Lack of reliable experience (morbidity) data
- Impact of variable factors
- More generous contract provisions
8
Q
Population Characteristics that have poorer persistency (6)
A
- Lower occupation classes
- Lower incomes
- Younger ages
- Lower premiums
- Premiums made quarterly
- Shorter benefit and elimination periods
9
Q
Types of reserves in DI insurance (2)
A
Significant reserves in DI include:
- Active life reserves - exists for policies priced on a level-premium basis. Consists of the excess premiums charged in early years to cover the premium shortfalls in later years.
- Disabled life reserves - established to cover each disability claims and its projected length. Reinsurance can be obtained to limit exposure.
10
Q
Experience studies in DI (5)
A
- Historically, LR experience used to track claim experience but unreliable due to factors that impact DI (i.e. length of elimination and benefit prd)
- Morbidity studies are more reliable method for tracking experience and for pricing - (based on A/E incidence and termination rates)
- Subjective adj required to incorporate contract language and benefits
- Diff in clm cost by sex - higher female morbidity up to age 50ish. Then, lower female morbidity at older ages.
- Many years of experience required to properly eval appropriateness of pricing assumptions.