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A pricing model system for small and micro loan insurance considering limited claims

Bin Hu and Yan-Ping Hu

International Review of Financial Analysis, 2024, vol. 93, issue C

Abstract: Based on various limited claim modes and the idea of option pricing, we build a pricing model system for small and micro loan insurance that conforms to the actuarial principle. It is found that different limited claim modes endow loan insurance contracts with various option attributes, which can be used to price small and micro loan insurance. Moreover, under the conditions of setting the upper and lower limits of claims separately or simultaneously, the pricing laws of loan insurance determined by such factors as insurance period may differ. Compared with the mode of relative deductible, the adoption of the mode of absolute deductible as the lower limit of a claim is more conducive to reducing the price of small and micro loan insurance. Our study provides a set of feasible theoretical solution for small and micro loan insurance pricing from a new perspective of limited claims.

Keywords: Small and micro loan insurance; Premium rate; Loan loss ratio; Upper limits of claims; Lower limits of claims (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:93:y:2024:i:c:s1057521924001443

DOI: 10.1016/j.irfa.2024.103212

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