On the transferability of reserves in lifelong health insurance contracts

Jan Dhaene, Els Godecharle, Katrien Antonio and Michel Denuit

No 494492, Working Papers Department of Accountancy, Finance and Insurance (AFI), Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Accountancy, Finance and Insurance (AFI), Leuven

Abstract: For lifelong health insurance covers, medical inflation not sufficiently incorporated in the level premiums determined at policy issue requires an appropriate increase of these premiums and/or of the corresponding reserves during the term of the contract. This premium and/or reserve update is necessary to maintain the actuarial equivalence between future health benefits and withdrawal payments on the one hand, and available reserves and future premiums on the other hand. In Vercruysse et al. (2013), premium and reserve indexing mechanisms were proposed in a discrete-time framework where medical inflation is only taken into account ex-post as it emerges over time and where the reserves are not transferable in case of policy cancellation. In this paper, we extend this work by investigating the more general situation where a surrender value is paid out in case of policy cancellation. Reserve-based as well as premium-based surrender values are considered.

Keywords: medical expense insurance; lifelong contract; medical inflation index; withdrawal; surrender value (search for similar items in EconPapers)
Date: 2015
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Published in FEB Research Report AFI_15102 , pages 1-32

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Working Paper: On the transferability of reserves in lifelong health insurance contracts (2015)
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