Select Mortality - Aggregated Premium Rates

This paper deals with pure death risk insurance, based on a natural premium system. Due to the underwriting procedure the underlying death risk for an insured person will differ from the mortality of another insured person of the same age, if their policies have been issued at different points of time - the phenomenon of select mortality among insured lives. Despite this, it will be necessary to base the tariff on an aggregated rating system. Basing the tariff on select mortality tables will result in healthy people continuously lapsing their contracts and demanding the issuing premium rate, according to their actual age. Setting an aggregated premium rate that is not loss-bringing is discussed, taking into consideration lapsing of contracts and including also a presumption regarding the force of entry as a function of age. The framework for the analysis is a multi-state time continuous Markov model.

Keywords: Death risk insurance, select mortality, force of entry, lapsing, aggregated rating.