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A flexible group benefits framework for pricing deposit rates

Author: 
Date created: 
2020-11-16
Identifier: 
etd21145
Keywords: 
Group insurance
Flexible benefits
Stochastic modelling
Adverse selection
Abstract: 

Currently, most flexible group benefit plans are designed and priced based on deterministic assumptions about the plan members’ option selections. This can cause the adverse selection spiral, threatening the sustainability of the plan. We therefore propose a comprehensive framework with a novel pricing formula that incorporates both a model for claims and a model for plan members’ enrollment decisions to prevent adverse selection. We find through simulation that our proposed pricing formula outperforms the traditional pricing practice by keeping flex plans sustainable over time. In addition to preventing the adverse selection spiral through pricing, our framework also serves as a tool to evaluate the impact of other parameters such as changes in plan designs, health costs, and member decision.

Document type: 
Graduating extended essay / Research project
Rights: 
This thesis may be printed or downloaded for non-commercial research and scholarly purposes. Copyright remains with the author.
File(s): 
Supervisor(s): 
Jean-François Bégin
Barbara Sanders
Department: 
Science: Department of Statistics and Actuarial Science
Thesis type: 
(Project) M.Sc.
Statistics: