Premium calculation for critical illness products

Abstract

According to the World Health Organization (WHO) Europe had the highest incidence of the cancer disease in 2008 and by the World Bank the cancer incidence rates rises as the country income increases. In this framework, people are stepping up their requests for the welfare services or for the insurance companies’ financial backing in order to face up to the risks concerning the human health and life, like the risk of becoming invalid, losing the own physical or mental ability to live independently or contracting a critical illness. Critical Illness Insurance is an insurance product where a fixed sum (lump sum) is payable on the diagnosis of one of a specified list of critical illnesses. The aim of this paper is to calculate premiums of Critical Illness policy, specifically for the homogeneous groups generated by sex and relation to smoking. In the calculation of the actuarial value of the insurer’s payments, we have employed the claim diagnosis rates for accelerated Critical Illness Insurance estimated by the members of the Continuous Mortality Investigation Critical Illness Committee (UK). We have shown that a single premium increases gradually until about the age 46 years (for both sex).