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Transaction time models in multi-state life insurance

Author

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  • Kristian Buchardt
  • Christian Furrer
  • Oliver Lunding Sandqvist

Abstract

In life insurance contracts, benefits and premiums are typically paid contingent on the biometric state of the insured. Due to delays between the occurrence, reporting, and settlement of changes to the biometric state, the state process is not fully observable in real-time. This fact implies that the classic multi-state models for the biometric state of the insured are not able to describe the development of the policy in real-time, which encompasses handling of incurred-but-not-reported and reported-but-not-settled claims. We give a fundamental treatment of the problem in the setting of continuous-time multi-state life insurance by introducing a new class of models: transaction time models. The relation between the transaction time model and the classic model is studied and a result linking the present values in the two models is derived. The results and their practical implications are illustrated for disability coverages, where we obtain explicit expressions for the transaction time reserve in specific models.

Suggested Citation

  • Kristian Buchardt & Christian Furrer & Oliver Lunding Sandqvist, 2023. "Transaction time models in multi-state life insurance," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2023(10), pages 974-999, November.
    • Handle: RePEc:taf:sactxx:v:2023:y:2023:i:10:p:974-999
    DOI: 10.1080/03461238.2023.2181708
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    Cited by:

    1. Catalina Lozano-Murcia & Francisco P. Romero & Jesus Serrano-Guerrero & Arturo Peralta & Jose A. Olivas, 2024. "Potential Applications of Explainable Artificial Intelligence to Actuarial Problems," Mathematics, MDPI, vol. 12(5), pages 1-13, February.
    2. Oliver Lunding Sandqvist, 2023. "A multistate approach to disability insurance reserving with information delays," Papers 2312.14324, arXiv.org.

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