Disability insurance with public benefits

Specialeforsvar: Louise Krogh Pihl, Freja Lund Fredholm

Titel: Disability insurance with public benefits

Abstract: This thesis investigates the interaction between private loss of earning capacity insurance and Danish public disability benefits. Loss of earning capacity insurance typically compensates for lost earnings up to 80 % of the insured’s pre-disability salary. Public benefits, structured through six distinct programs, vary significantly in benefit rates and requirements, introducing complexity in the design of insurance products. To address this, we extend a semi-Markov model to consist of the public disability states and incorporate a double duration dependence reflecting both time since disability and state duration. Using data from Statistics Denmark, transition rates are estimated in order to calculate transition probabilities, cash flows and prospective reserves to analyze different loss of earning capacity product designs. Based hereon, different product designs are compared. We find that product designs that depend on the public states introduce additional uncertainties. This is further explored in a sensitivity analysis of the resulting reserves and premiums. The risk introduced with public disability programs is found to serve an additional substantial risk to the life insurance company than the biometric stress known from Solvency II.

Vejledere: Christian Furrer, Jamaal Ahmad
Censor:      Kenneth Bruhn, Edlund