James B. Ross and Criss G. Woodruff
Abstract
For ordinary life policyholders who want to pay more frequently than annually, insurers construct schedules of modal premium factors that reflect additional charges for the costs of collection, forgone interest, and premiums uncollected or refunded in the year of death. Competition within the industry forces convergence of such schedules. On the other hand, if such factors for a given company reflect its own experience (in expense, interest, mortality, and persistency), the differences between companies will force schedules apart.
Analysis of a large group of life insurers over the 1972-1982-1992 period shows that modal premium factors are clustered closely, that they are becoming more dispersed over time, and that the mean factors are increasing as a percentage of premiums. These findings are consistent with the viewpoint that modal premium factors are beginning to reflect individual company experience and that the companies increasingly are able to cover the additional costs of business written on other than an annual basis.
Key words and phrases: price competition, company experience, expenses, fractional, mortality
James B. Ross