Disability Income Insurance: Evaluation of Results

Question 1

Types of disability income claim experience studies (2)

Answer 1

1. Actual to expected morbidity - this is the most preferable method of examining DI experience but often not enough data.
2. Loss ratio - due to limited amount of data, most studies are based on claims ratios.

Question 2

Morbidity consist of (for A to E) (2)

Answer 2

1. Rate of disability - the number of disabled lives per 1,000 lives exposed
2. Rate of recovery - measures the length of disability. The number of disabled lives that will recover at different points in time per 1,000 disabled lives.

Question 3

Loss Ratio used in A to E (2)

Answer 3

1. Cash claims ratio - claims dollars paid out divided by earned premium
2. Incurred claims ratio (preferred) = (claims + active life reserve + clm rsv)/(earned premiums)

Question 4

Parameters to consider is a disability income claims or persistency study (16)

Answer 4

These parameters have an impact on claims cost (morbidity):

1. Occupation class
2. Occupation
3. Policy form - study by policy form needed to determine whether pricing assumptions were correct for new forms
4. Extra benefits
5. Age
6. Duration - due to wear off of UW selection, LR will be higher on older blocks than newer blocks
7. Elimination period
8. Benefit period
9. Indemnity (benefit amount)
10. Income
11. Geography
12. Agent and agency
13. Sex - higher morbidity for women up to age 50ish
14. Mode of premium payment - annual generates more favorable experiences
15. Smoking status
16. Combinations of the above parameters