Abstract

Journal of Actuarial Practice

Volume 9, Numbers 1 and 2, 2001

A Sensitivity Analysis of the Premiums for a Permanent Health Insurance (PHI) Model

Ben Rickayzen

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

Key words and phrases: PHI benefits, force of transition, Markov chain, lapses.

Corresponding Author:

Ben Rickayzen

Department of Actuarial Science and Statistics

City University

London EC1V 0HB

UNITED KINGDOM