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The University of Southampton
Mathematical Sciences

Mathematics Senior Lecturer Gerard Kennedy’s research featured in Actuary Magazine

Published: 16 May 2014

This feature article summarises a recent analysis by cause of sickness of UK income protection (IP) insurance claims, and the implications for insurers, undertaken by the Continuous Mortality Investigation (CMI) Income Protection Committee (published as CMI Working Paper 72). Analysis by cause is essential to the proper actuarial modelling and management of IP business and enables accurate pricing of products, efficient reserving and improved management of claims in payment, and better informed product development.

The analysis considers the trends, and variability in respect of a number of factors, of IP claim inceptions and claim terminations (both recoveries from sickness and deaths), and the distribution of claim costs, all split by cause of sickness. In total, 72 individual causes of sickness are considered, which are aggregated into 15 cause groups on the basis of medical similarity.

The article highlights the variation of claim characteristics by cause and the need for actuaries to keep abreast of both evolving market practice and medical advances, as changes in underwriting philosophy, workplace regulations, and claims management processes, as well as in the prevalence and treatment of different medical conditions, all influence the cause-specific actuarial assumptions that underlie both the design and pricing of IP products and the reserving and management of claims in payment.

Gerard comments, "The incidence and subsequent pattern of income protection insurance claims vary considerably by the cause of sickness that underlies the claim, as well as by a number of other factors. This research will help insurers who write income protection business to better understand and quantify such variation, particularly that by cause, and thereby enable them to improve the design and pricing of their products and to more efficiently allocate their capital in the provision for and management of claims in payment".

The research underpinning the article is published as CMI Working Paper 72 this can be accessed but access requires registration.

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