Probability that a health policy become a claim policy is equal to 0.3 if age of the policy holder is more than 50 years otherwise it is 0.2. This policy is designed for a particular lifestyle people where 20% of the persons are above 50 years of age.
Claim amount distribution is linear varying between Rs. 1000 to Rs. 25000 with 0.5 probability, between Rs. 25000 to Rs. 100000 with 0.3 probability and between Rs. 100000 to Rs. 150000 with 0.2 probability.
10% of the premium collected is accounted for administrative cost.
Simulate this for 1000 policies taking premium as Rs. 6000 per policy. Experiment by changing the claim distribution pattern and other variables in this model.
At present, this product is heavily loss making. But it is possible to reduce the premium and still have profit with same claim amount distribution. It can be a win-win product. Share your views and findings in the comment below.
A calc file is available at https://drive.google.com/file/d/0B6PHuk6I5SxbcmN3WnpQYW5rTzg/view?usp=sharing without documentation for help.
A calc file is available at https://drive.google.com/file/d/0B6PHuk6I5SxbcmN3WnpQYW5rTzg/view?usp=sharing without documentation for help.
Using simulation it is observed that in given conditions this product can not be profitable even after increasing annual premium. It may be viable only if the admin costs are reduced by increasing number of sells,better claim experience through proper risk underwriting at initial stage and restricting claim payouts by introducing certain lean or exclusions or deferment periods under the product.
ReplyDeleteIt is not proper to introduce restrictions in the product .
ReplyDeleteBut we may look for sharing the claim amounts jointly with the policy holder so as to ensure genuine claim experiences.
Delete