Pricing Critical Illness Using the Multiple Decrement Model Approach

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The introduction of this booklet is about what the project entails (i.e. Pricing Critical Illness Using the Multi-State Model) To know the amount of money one has to pay for an insurance premium of a condition of a serious illness occurring, the first and critical step is to know the incidence rate and its corresponding premium rate for that particular illness. Due to the frequent hardships that an individual diagnosed of a particular illness go through in paying for medical bills, there is the need for an insurance that can help reduce these hardships. This happens because some of these diseases sometimes render them incapable of being able to work for a living. In this project we consider three major diseases (known as the big three) which can cause such major problems in one‟s life. They are Cancer, Heart Attack and Stroke. Where the incidence rate, and the premium rates for these illnesses are computed for individuals from the age of 20 to age 74. We use the a three state multiple decrement model, where the states are Active (Healthy) for state 1, Critical (Dread Disease) Sufferer for State 2 and Dead for State 3 The Dash and the Grimshaw model was used to accomplish this and it was found out that the premium rate for any the illnesses considered was directly proportional to one's age. It was also realized that the incidence rate of cancer was prevalent amongst females than males.
A thesis submitted to the School of Graduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi, in partial fulfilment of the requirements for the award of the Degree of Master of Philosophy in Mathematics