1167 Lidan (Lucy) Zhang

A multi-state model for a life insurance product with integrated health rewards program

With the prevalence of chronic diseases that accounts for a significant portion of mortality, a new approach to life insurance has emerged to address this issue. The new approach integrates health rewards programs with life insurance products; by completing certain health goals aimed at promoting health and wellness, policyholders earn bonus points which can be used to reduce their premiums. We introduce a Markov chain process to model the dynamic change of individuals’ fitness rating, based on their level of engagement in the health rewards program, which is linked to corresponding level of mortality improvement. We then embed this fitness rating system into a stochastic multi-state model to describe the new life insurance product. In this project, we derive formulas for calculating its liability, premium and reserve, and analyze its surplus. These results are compared with the ones for traditional life insurance products. Numerical examples are also given for illustration.