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Allocation of benefits in mutual aid and survivor funds

Author

Listed:
  • Denuit, Michel

    (Université catholique de Louvain, LIDAM/ISBA, Belgium)

  • Robert, Christian Y.

Abstract

Consider a group of individuals contributing in advance (ex ante) a fixed amount to a pool constituted over a reference period to mutually protect against the financial consequences of the occurrence of a predefined event such as death, survival or being diagnosed with a critical illness for instance. They agree that the sum of the contributions is shared in arrear (ex post) among those participants having experienced the predefined event. The allocation can be uniform among claiming participants, each one receiving an equal share of total contributions, or participants may be offered the choice to select in advance an expected amount of benefit, corresponding to their desired protection level. As an application, the paper considers mutual aid funds and survivor funds. The proposed systems are fully funded since contributions are paid in advance. The benefits in case the event occurs are therefore random but the volatility of the terminal payouts turns out to be limited when the number of participants gets large enough. Insurance at fair price is recovered at the limit, within infinitely large pools. The link with takaful insurance is discussed, as well as minimum guar- antees to make the system more attractive.

Suggested Citation

  • Denuit, Michel & Robert, Christian Y., 2022. "Allocation of benefits in mutual aid and survivor funds," LIDAM Discussion Papers ISBA 2022029, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvad:2022029
    as

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    References listed on IDEAS

    as
    1. Denuit, Michel & Hieber, Peter & Robert, Christian Y., 2022. "Mortality Credits Within Large Survivor Funds," ASTIN Bulletin, Cambridge University Press, vol. 52(3), pages 813-834, September.
    2. Denuit, Michel & Hieber, Peter & Robert, Christian Y., 2022. "Mortality credits within large survivor funds," LIDAM Reprints ISBA 2022030, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    3. Adnan Malik & Karim Ullah, 2019. "Introduction to Takaful," Springer Books, Springer, number 978-981-32-9016-7, October.
    4. Mohd Ma’Sum Billah, 2019. "Islamic Insurance Products," Springer Books, Springer, number 978-3-030-17681-5, October.
    5. Abdikerimova, Samal & Feng, Runhuan, 2022. "Peer-to-peer multi-risk insurance and mutual aid," European Journal of Operational Research, Elsevier, vol. 299(2), pages 735-749.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Risk pooling ; Actuarial fairness ; Mutual inheritance ; Insurance at fair price ; Takaful;
    All these keywords.

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