Finance Department

 

Date of this Version

2001

Document Type

Article

Citation

Journal of Actuarial Practice 9 (2001), pp. 189-228

Comments

Copyright 2001 Absalom Press

Abstract

This paper presents an analysis of the parameters used in a multi-state model for permanent health insurance (PHI). The model is a simplification of that used in the United Kingdom. To avoid using duration dependent probabilities, the model splits the sick state into several sub-states to act as a proxy for duration spent in a particular state. This enables a Markov approach to be adopted. Lapses are incorporated within the model, and the net premium for a particular policy is tested for sensitivity to the various parameters used, including their interaction with the lapse rate. One of our conclusions is that the net premium is insensitive to changes in the lapse rate.

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