A multistate approach to disability insurance reserving with information delays

Paper: arXiv 2312.14324

Authors: Oliver Lunding Sandqvist

Abstract

Disability insurance claims are often affected by lengthy reporting delays and adjudication processes. The classic multistate life insurance modeling framework is ill-suited to handle such information delays since the cash flow and available information can no longer be based on the biometric multistate process determining the contractual payments. We propose a new individual reserving model for disability insurance schemes which describes the claim evolution in real-time. Under suitable independence assumptions between the available information and the underlying biometric multistate process, we show that these new reserves may be calculated as natural modifications of the classic reserves. We propose suitable parametric estimators for the model constituents and a real data application shows the practical relevance of our concepts and results.

Complexity vs Empirical Score

• Math Complexity: 7.5/10
• Empirical Rigor: 6.5/10
• Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper tackles a known practical issue in disability insurance by extending the classic multistate framework to account for information and reporting delays. It combines rigorous stochastic modeling and parametric estimation with a real-data empirical application demonstrating practical viability.

Research Flowchart

  flowchart TD
    A["Research Goal: Individual Reserving for Disability Insurance with Information Delays"] --> B["Data Inputs: Claim Reporting Delays, Adjudication Times & Real Data"]
    B --> C["Methodology: Real-time Multistate Framework under Independence Assumptions"]
    C --> D["Computational Process: Derive Natural Modifications of Classic Reserves & Parametric Estimators"]
    D --> E["Key Outcome: Accurate Real-time Reserves Validated by Real Data Application"]