Danish model: Relation between disability insurance benefit and public social security

Specialeforsvar ved Sofie Katrine Frium

Titel:   Danish model: Relation between disability insurance benefit and public social security

Abstract: This paper studies the total income of a policyholder and as the main challenge to this; the off-settings that arise as products of the relation between disability insurance and Danish public social security. The specific off-settings are defined and presented and the consequences that they bring along are studied using standard cash flow theory in life insurance mathematics. Especially the consequences towards policyholders are looked further into and how these can be handled to meet the interests of the individual policy-holder. In order to do so, tools to advise the individual policyholder on the choice in relation to disability insurance coverage are developed. The purposes of the tools are based on the results gained throughout the paper stating that the consequences of off-setting varies dependent on the specific situation of the policyholder. In general, the paper shows that a higher coverage ratio will lead to a higher probability of a regulated disability insurance benefit and at some point it will not be beneficial to raise coverage ratio further. On the contrary, a too low coverage may not be advantageously either. In relation to this, the importance of studying the total income of a given policyholder is underlined. The paper narrows down the choice of the individual policyholder to be whether to wish for a stable income throughout the life cycle or to aim for the highest pay-off. In general, the paper emphasizes the importance of taking off-setting into account as a pension company - both in relation to advising policyholders but in line with this also in relation to pricing the product and estimating provisions.

Vejleder:  Mogens Steffensen
Censor:    Jeppe Woetmann Nielsen, Edlund