Long term care insurance pricing in Spanish population: a functional data approach

Developed and developing countries are experiencing the consequences of an ever-increasing elderly population, including the challenges of chronic illness, disability, dependency and long term care. All over the world, more people are surviving diseases that were fatal some decades ago. Dependency can be seen as a consequence of the process of gradual aging. In a health context, this contingency is defined as a lack of autonomy in performing basic activities of daily living that requires the care of another person or significant help. In this work we propose a stand-alone insurance, focused on the necessities of the eligible dependent people in Spain, taking into account their health evolution along their lives, in order to enhance the net premium calculation. We use information from the Spanish survey EDAD 2008. The main finding is that, a policyholder can choose to underwrite among three kinds of coverages, going from a minimum to a maximum level of protection, the latter's premium being more than twice the former's, regardless of the onset of dependency.