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Applications of a multi-state risk factor/mortality model in life insurance

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  • Kwon, Hyuk-Sung
  • Jones, Bruce L.

Abstract

Mortality rates are known to depend on socio-economic and behavioral risk factors, and actuarial calculations for life insurance policies usually reflect this. It is typically assumed, however, that these risk factors are observed only at policy issue, and the impact of changes that occur later is not considered. In this paper, we present a discrete-time, multi-state model for risk factor changes and mortality. It allows one to more accurately describe mortality dynamics and quantify variability in mortality. This model is extended to reflect health status and then used to analyze the impact of selective lapsation of life insurance policies and to predict mortality under reentry term insurance.

Suggested Citation

  • Kwon, Hyuk-Sung & Jones, Bruce L., 2008. "Applications of a multi-state risk factor/mortality model in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 43(3), pages 394-402, December.
    • Handle: RePEc:eee:insuma:v:43:y:2008:i:3:p:394-402
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    References listed on IDEAS

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    1. Angus Macdonald & Howard Waters & Chessman Wekwete, 2005. "A Model for Coronary Heart Disease and Stroke with Applications to Critical Illness Insurance Underwriting II: Applications," North American Actuarial Journal, Taylor & Francis Journals, vol. 9(1), pages 41-56.
    2. Angus Macdonald & Howard Waters & Chessman Wekwete, 2005. "A Model for Coronary Heart Disease and Stroke with Applications to Critical Illness Insurance Underwriting I: The Model," North American Actuarial Journal, Taylor & Francis Journals, vol. 9(1), pages 13-40.
    3. Bruce Jones, 1998. "A Model for Analyzing the Impact of Selective Lapsation on Mortality," North American Actuarial Journal, Taylor & Francis Journals, vol. 2(1), pages 79-86.
    4. Kwon, Hyuk-Sung & Jones, Bruce L., 2006. "The impact of the determinants of mortality on life insurance and annuities," Insurance: Mathematics and Economics, Elsevier, vol. 38(2), pages 271-288, April.
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    Cited by:

    1. Guglielmo D'Amico & Montserrat Guillen & Raimondo Manca & Filippo Petroni, 2017. "Multi-state models for evaluating conversion options in life insurance," Papers 1707.01028, arXiv.org.
    2. Boumezoued, Alexandre & Karoui, Nicole El & Loisel, Stéphane, 2017. "Measuring mortality heterogeneity with multi-state models and interval-censored data," Insurance: Mathematics and Economics, Elsevier, vol. 72(C), pages 67-82.

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