Evaluating Medical Underwriters in Life Settlements: Problem of Unreported Deaths

21 Pages Posted: 23 Nov 2020

See all articles by Hong Beng Lim

Hong Beng Lim

The University of Iowa, Department of Statistics and Actuarial Science

N. D. Shyamalkumar

The University of Iowa

Date Written: October 5, 2020

Abstract

The valuation of policies in the life settlement market hinges upon life expectancy assessments provided by medical underwriters. As accurate assessments are essential to the well-functioning of the market, determining so is of interest to various stakeholders, including regulatory bodies. As a third party to settlement transactions, these underwriters, and hence their auditors, have to rely on public sources in compiling mortality data on underwritten insureds. Such acquired data is known to contain a significant proportion of unreported deaths. Precisely accounting for their presence is crucial to a fair evaluation of an underwriter’s assessments. However, existing methods for doing so either rely solely on actuarial opinion or are based on assumptions untenable in the life settlement context. Towards developing a practical data-driven methodology for consistently estimating mortality in the presence of unreported deaths, we propose the IBNR rate model, an adaptation of the cure rate model that importantly accommodates the heterogeneity in the rates of both mortality and unreported deaths seen in practice. Our methodology thus facilitates an accurate and objective evaluation of an underwriter.

Keywords: life settlements, medical underwriters, unreported deaths, cure rate model

Suggested Citation

Lim, Hong Beng and Shyamalkumar, Nariankadu, Evaluating Medical Underwriters in Life Settlements: Problem of Unreported Deaths (October 5, 2020). Available at SSRN: https://ssrn.com/abstract=3705035 or http://dx.doi.org/10.2139/ssrn.3705035

Hong Beng Lim (Contact Author)

The University of Iowa, Department of Statistics and Actuarial Science ( email )

Iowa City, IA 52242-1409
United States

Nariankadu Shyamalkumar

The University of Iowa ( email )

Iowa City, IA 52242-1409
United States

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