Disability insurance with public benefits

Specialeforsvar: Mary Rui Ma

Titel: Disability insurance with public benefits

Abstract:  This thesis extends the traditional semi-Markov model to incorporate six public benefit states for disabled individuals, thereby providing a more realistic and improved framework for valuation, pricing and understanding of commercial disability insurance. Transition intensities between different public benefit states are estimated using real data through maximum likelihood methods for parametric multi-state models, including Poisson regressions. The extended model is implemented numerically to compute transition probabilities, expected cash flows and reserves, providing insights into how age, initial duration and time since disability influence these outcomes, which reveal varying impacts and patterns that align with the underlying characteristics of different public benefit states. Finally, these findings are used to price different coverages of the
disability insurance product. It is found that while higher coverage percentages offer more comprehensive protection across all public benefit states, they also increase the premium and thus affect the overall attractiveness of the product and the financial risk borne by the insurance company, especially for high-income individuals.

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