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Private long term care insurance: Theoretical approach and results applied to the Spanish case

Author

Listed:
  • Pablo Alonso González

    (Departamento de Economía, Universidad de Alcalá.)

  • Irene Albarrán Lozano

    (Departamento de Estadística, Universidad Carlos III de Madrid.)

Abstract

The passing of the Law 39/2006 has given to Spanish insurance companies the chance of offering products that cover the expenses associated to the risk of dependence. However, due to the lack of reliable statistic information about dependent population, it is extremely difficult to evaluate not only the frequency but also the cost. These two items make the pricing process with a big cloud of uncertainty. This paper proposes a methodology for premium calculation taking into account not only the availability of the data but also the current legal framework in Spain. Together to the theoretical approach, premium calculations for two possible versions are included. Finally, it is introduced a simulation model that pretends to evaluate the impact that a portfolio with these kind of contracts would have on the solvency of an insurance company.

Suggested Citation

  • Pablo Alonso González & Irene Albarrán Lozano, 2009. "Private long term care insurance: Theoretical approach and results applied to the Spanish case," Alcamentos 0902, Universidad de Alcalá, Departamento de Economía..
    • Handle: RePEc:alc:alcamo:0902
    as

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    File URL: http://ebuah.uah.es/dspace/bitstream/handle/10017/3323/Alcamentos0902.pdf
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    References listed on IDEAS

    as
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    3. Levikson, B. & Mizrahi, G., 1994. "Pricing long term care insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 14(1), pages 1-18, April.
    4. Pitacco, Ermanno, 1995. "Actuarial models for pricing disability benefits: Towards a unifying approach," Insurance: Mathematics and Economics, Elsevier, vol. 16(1), pages 39-62, April.
    5. Patrick Hennessy, 1995. "Social Protection for Dependent Elderly People: Perspectives from a Review of OECD Countries," OECD Labour Market and Social Policy Occasional Papers 16, OECD Publishing.
    6. Segerer, Gunther, 1993. "The actuarial treatment of the disability risk in Germany, Austria and Switzerland," Insurance: Mathematics and Economics, Elsevier, vol. 13(2), pages 131-140, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Long term care insurance; pricing; multi-state model; simulation; solvency;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C39 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Other
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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