Author:
Adams C.,Donnelly C.,Macdonald A.
Abstract
AbstractCommon to all previous studies assessing the cost of adverse selection associated with genetics has been the assumption of an established market, i.e., the adverse selectors have been buying insurance at that rate for such a period that premiums have already absorbed it. Their analyses involve calculating the percentage difference between premiums in a market with adverse selection and one without adverse selection. They can shed no light on how the premiums would get to this stage over time and what losses might be incurred in the process. We take the modelling further by outlining a multiple state Markov model for a start-up market of long-term care insurance. With this model, we explicitly show the progression of adverse selection costs using the development of information that an insurer would gain from analysing the claims history of its existing business, to reprice premiums for new business. To overcome the complication of insurance benefit amounts, which depend on the value of previous benefit payments, we develop a simulation approach of estimating the expected present values of insurance benefits and premium payments. In applying our modelling to a UK setting, we find genetic testing of the apolipoprotein E gene (whose variants can cause a high risk of developing dementia) to be of a relatively small impact compared with our hypothetical state of intermediate dementia progression. Furthermore, we find that the government’s cap on care costs has little effect on adverse selection costs as it benefits only a small proportion of people.
Publisher
Cambridge University Press (CUP)
Subject
Statistics, Probability and Uncertainty,Economics and Econometrics,Statistics and Probability
Reference69 articles.
1. Will testing for apolipoprotein E assist in tailoring dementia risk reduction? A review
2. Laing & Buisson (2012/2013). Care of elderly people report. Retrieved June 5, 2013 from http://www.payingforcare.org
3. Prevalence of dementia in the elderly in Europe
4. Laing & Buisson (2011). Domiciliary care UK market report. Retrieved June 5, 2013 from http://www.payingforcare.org
5. Office for National Statistics (2013). Average weekly earnings dataset. Retrieved June 5, 2013 from http://www.ons.gov.uk/ons/rel/lms/labour-market-statistics/january-2013/dataset--earnings.html
Cited by
4 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献