A model incorporating the heterogeneity of insured lives

grantor: University of TorontoThe traditional actuarial assumption is to assume that for a policyholder who has purchased insurance at age 'x' and has survived to age 'x' + 'k', that during the select period, the particular individual will die with probability qx+k . Furthermore, it is assumed that all policies are subject to lapsation. Lapse rates are assumed to only depend on policy duration. This thesis establishes a model that assumes that an insured can be regarded as "healthy" at the time of policy issue. At subsequent policy durations, the insured may still be in the "healthy" state, or have moved to an "impaired" state from which the lapse probability is zero. Policyholders who have moved to the "impaired" state are also at a considerably higher mortality risk. In this thesis we propose a model for estimating the portion of policyholders at each age who are in the healthy and impaired state, and thereby determine the higher mortality probabilities for those in the impaired state. Furthermore, if we examine the healthy state, we can establish a 3-decrement model for departures from the healthy state. The three causes are death, lapsation, and becoming impaired. We then propose a copula approach to establishing the three associated single decrement tables, as we can not assume independence between the decrements of lapsation and becoming impaired.Ph.D