## Insurance abstract
Sets of future risk expectation strings for long term care and
for life expectancy are categorized into a plurality of Joint Equal
Age Risk Classifications, upon which risk exposure sequencing and
present risk value analysis are applied to calculate joint equal
age present risk values that are inputted into a Joint Equal Age
Risk Chart; future risk expectation strings for long term care and
for life expectancy are also categorized into a plurality of Age
Differential Classifications, which are distinct and independent
from the separately categorized Joint Equal Age Classifications.
Risk exposure sequencing and present risk value analysis are applied
to calculate temporary joint equal age present risk values and temporary
differential present risk values, which are compared to generate
temporary age equivalence differentials that are inputted into a
temporary age equivalence matrix from which an age differential
adjustment factors are drawn and inputted into an Age Differential
Adjustment Chart. The so constructed Joint Equal Age and Age Differential
Adjustment Charts are then used, in combination, to form the basis
for rate structuring of an insurance product covering joint long
term care and life benefits.
## Insurance claims
What is claimed is:
1. A computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured, said system comprising: means for generating
a set of future risk expectation strings for long term care for
an individual insured, categorized by age, sex, and smoking status,
and for generating a set of future risk expectation strings for
life expectancy for an individual insured, categorized by age, sex,
and smoking status; means for processing said set of future risk
expectation strings for long term care and said set of future expectation
strings for life expectancy by applying risk exposure sequencing
and present risk value analysis to said long term care and life
expectancy risk expectation string values for joint equal age to
generate joint equal age present risk values; means for processing
said joint equal age present risk values to generate a Joint Equal
Age Risk data matrix; means for categorizing said sets of future
risk expectation strings for long term care and for life expectancy
into a plurality of Age Differential Classifications; means for
processing each of said Age Differential Classifications (ADC) over
a range of possible age differentials (W) between joint insureds,
including: a) means for applying risk exposure sequencing and present
risk value analysis to generate temporary joint equal age present
risk values (JEA) over a range of possible issue ages (i); b) for
each older issue age (x): 1) means for applying risk exposure sequencing
to generate a temporary differential present risk value (ADF[x,x-W]);
2) means for comparing said temporary differential present risk
value ADF[x,x-W] with said temporary joint equal age present risk
values (JEA), and selecting the crossover point where ADF[x,x-W]<JEA[(i-1)]
and ADF[x,x-W]>JEA[i]; and 3) means for storing the crossover
point differential (x-i) into a temporary age equivalence matrix;
c) means for analyzing a completed temporary age equivalence matrix
for a given ADC and W to select an age differential adjustment factor
for said ADC and W, and d) means for storing said selected age differential
adjustment factor into an Age Differential Adjustment data matrix;
and means for generating Joint Equal Age and Age Differential Adjustment
Charts from said Joint Equal Age and Age Differential Adjustment
data matrices for use in rate structuring an insurance product covering
joint long term care and life benefits.
2. The computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 1 including means for categorizing
said risk expectation strings into four Joint Equal Age Risk Classifications,
and wherein said Joint Equal Age Risk Classifications are: a) a
first joint equal age classification including two non-smoking females,
two females (one smoking), and a male and female (both non-smoking);
b) a second joint equal age classification including a male and
female (one smoking), two non-smoking males, and two smoking females;
c) a third joint equal age classification including two males (one
smokes), and a male and female (both smoke); and d) a fourth joint
equal age classification including two smoking males.
3. The computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 2 wherein: said Age Differential
Classifications are: a) a first age differential classification
including two males; b) a second age differential classification
including a male and female, with the older insured being the male;
c) a third age differential classification including a male and
female, with the older insured being the female; and d) a fourth
age differential classification including two females.
4. The computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 3 wherein: said each of said
Age Differential Classifications further include subcategories where:
1) both insureds are non-smokers; 2) the older insured is a smoker
and the younger insured is a non-smoker; 3) the older insured is
a non-smoker and the younger insured is a smoker; and where 4) both
insureds are smokers.
5. The computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 1 wherein: said Age Differential
Classifications are: a) a first age differential classification
including two males; b) a second age differential classification
including a male and female, with the older insured being the male;
c) a third age differential classification including a male and
female, with the older insured being the female; and d) a fourth
age differential classification including two females.
6. The computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 5 wherein: said each of said
Age Differential Classifications further include subcategories where:
1) both insureds are non-smokers; 2) the older insured is a smoker
and the younger insured is a non-smoker; 3) the older insured is
a non-smoker and the younger insured is a smoker; and where 4) both
insureds are smokers.
7. A computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured, said system comprising: means for generating
a set of future risk expectation strings for long term care for
an individual insured, categorized by age, sex, and smoking status,
and for generating a set of future risk expectation strings for
life expectancy for an individual insured, categorized by age, sex,
and smoking status; means for categorizing possible risk categories
into a plurality of Joint Equal Age Risk Classifications; means
for processing said set of future risk expectation strings for long
term care into a plurality of blended long term care risk classifications
of joint equal age; means for processing said set of future risk
expectation strings for life expectancy into a plurality of blended
life expectancy risk classifications of joint equal age; said blended
set of future risk expectation strings for long term care and said
blended set of future risk expectation strings for life expectancy
for a given Joint Equal Age Risk Classification, in combination,
forming a set of blended risk expectation strings for said Joint
Equal Age Classification; for each Joint Equal Age Risk Classification
and each issue age, means for applying risk exposure sequencing
and present risk value analysis to said blended joint equal age
risk expectation strings for said given Joint Equal Age Risk Classification
to generate a joint equal age present risk value, and means for
storing said joint equal age present risk value for said given Joint
Equal Age Risk Classification and issue age into a Joint Equal Age
Risk data matrix; means for categorizing said unblended sets of
future risk expectation strings for long term care and for life
expectancy into a plurality of Age Differential Classifications,
said Age Differential Classifications being distinct and independent
from said Joint Equal Age Classifications; means for processing
each of said Age Differential Classifications (ADC) over a range
of possible age differentials (W) between joint insureds to select
an age differential adjustment factor for each of said ADCs and
Ws; means for storing said selected age differential adjustment
factors into an Age Differential Adjustment data matrix; and means
for generating Joint Equal Age and Age Differential Charts from
said Joint Equal Age and Age Differential Adjustment data matrices
for use in rate structuring an insurance product covering joint
long term care and life benefits.
8. The computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 7 wherein: said Joint Equal Age
Risk Classifications are: a) a first joint equal age classification
including two non-smoking females, two females (one smoking), and
a male and female (both non-smoking); b) a second joint equal age
classification including a male and female (one smoking), two non-smoking
males, and two smoking females; c) a third joint equal age classification
including two males (one smokes), and a male and female (both smoke);
and d) a fourth joint equal age classification including two smoking
males.
9. The computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 8 wherein: said Age Differential
Classifications are: a) a first age differential classification
including two males; b) a second age differential classification
including a male and female, with the older insured being the male;
c) a third age differential classification including a male and
female, with the older insured being the female; and d) a fourth
age differential classification including two females.
10. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 9 wherein: said each of said
Age Differential Classifications further include subcategories where:
1) both insureds are non-smokers; 2) the older insured is a smoker
and the younger insured is a non-smoker; 3) the older insured is
a non-smoker and the younger insured is a smoker; and where 4) both
insureds are smokers.
11. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 7 wherein: said Age Differential
Classifications are: a) a first age differential classification
including two males; b) a second age differential classification
including a male and female, with the older insured being the male;
c) a third age differential classification including a male and
female, with the older insured being the female; and d) a fourth
age differential classification including two females.
12. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 11 wherein: said each of said
Age Differential Classifications further include subcategories where:
1) both insureds are non-smokers; 2) the older insured is a smoker
and the younger insured is a non-smoker; 3) the older insured is
a non-smoker and the younger insured is a smoker; and where 4) both
insureds are smokers.
13. A computerized system for underwriting a combined, joint life
and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured, said system comprising: means for generating
a set of future risk expectation strings for long term care for
an individual insured, categorized by age, sex, and smoking status,
and for generating a set of future risk expectation strings for
life expectancy for an individual insured, categorized by age, sex,
and smoking status; and processor means for processing each of said
sets of future risk expectation strings for long term care and for
life expectancy for an individual insured to generate a Joint Equal
Age Risk Chart and an Age Differential Adjustment Chart for use
in rate structuring an insurance product covering joint long term
care and life benefits, said processor means including: means for
categorizing said set of future risk expectation strings for long
term care and said set of future risk expectation strings for life
expectancy for an insured into a plurality of Joint Equal Age Risk
Classifications; for each Joint Equal Age Risk Classification and
each issue age, means for applying risk exposure sequencing and
present risk value analysis to generate a joint equal age present
risk value, and inputting said joint equal age present risk value
for said given Joint Equal Age Risk Classification and issue age
into a Joint Equal Age Risk data matrix; means for categorizing
said sets of future risk expectation strings for long term care
and for life expectancy into a plurality of Age Differential Classifications,
said Age Differential Classifications being distinct and independent
from said Joint Equal Age Classifications; for each of said Age
Differential Classifications (ADC) and for a range of possible age
differentials (W) between joint insureds: a) means for applying
risk exposure sequencing and present risk value analysis to generate
temporary joint equal age present risk values (JEA) for a range
of possible issue ages (i); b) for each older issue age (x): 1)
means for applying risk exposure sequencing to generate a temporary
differential present risk value (ADF[x,x-W]); 2) means for comparing
said temporary differential present risk value ADF[x,x-W] with said
temporary joint equal age present risk values (JEA), and selecting
a temporary age equivalence differential; and 3) means for inputting
said temporary age equivalence differential into a temporary age
equivalence matrix; c) means for analyzing a completed temporary
age equivalence matrix for a given ADC and W to select an age differential
adjustment factor for said ADC and W, and d) means for inputting
said selected age differential adjustment factor into an Age Differential
Adjustment data matrix; and means for generating Joint Equal Age
and Age Differential Adjustment Charts from said Joint Equal Age
and Age Differential Adjustment data matrices for use in rate structuring
an insurance product covering joint long term care and life benefits.
14. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 13 wherein: said Joint Equal
Age Risk Classifications are: a) a first joint equal age classification
including two non-smoking females, two females (one smoking), and
a male and female (both non-smoking); b) a second joint equal age
classification including a male and female (one smoking), two non-smoking
males, and two smoking females; c) a third joint equal age classification
including two males (one smokes), and a male and female (both smoke);
and d) a fourth joint equal age classification including two smoking
males.
15. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 14 wherein: said Age Differential
Classifications are: a) a first age differential classification
including two males; b) a second age differential classification
including a male and female, with the older insured being the male;
c) a third age differential classification including a male and
female, with the older insured being the female; and d) a fourth
age differential classification including two females.
16. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 15 wherein: said each of said
Age Differential Classifications further include subcategories where:
1) both insureds are non-smokers; 2) the older insured is a smoker
and the younger insured is a non-smoker; 3) the older insured is
a non-smoker and the younger insured is a smoker; and where 4) both
insureds are smokers.
17. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 13 wherein: said Age Differential
Classifications are: a) a first age differential classification
including two males; b) a second age differential classification
including a male and female, with the older insured being the male;
c) a third age differential classification including a male and
female, with the older insured being the female; and d) a fourth
age differential classification including two females.
18. The computerized system for underwriting a combined, joint
life and long term care insurance policy which is actuarially responsive
to the long term care expectations and life expectancies of the
individuals being insured of claim 17 wherein: said each of said
Age Differential Classifications further include subcategories where:
1) both insureds are non-smokers; 2) the older insured is a smoker
and the younger insured is a non-smoker; 3) the older insured is
a non-smoker and the younger insured is a smoker; and where 4) both
insureds are smokers.
## Insurance description
Over the course of time, insurance has played a significant role
in protecting the valued aspects of our lives. When insured against
loss, we have found ourselves in an enclave of safety, guarded against,
if not the loss itself, then at least the risk of loss. When not
insured, we have left ourselves exposed to the unpredictable nature
of fate.
Dating as far back as ancient times, insurance has protected us
from virtually all varieties of loss. We have been protected against
the loss of life, property, and the ability to perform required
tasks. Our health and medical care requirements have been insured,
as well as our retirement needs. Today, we find that nearly each
aspect of our life is protectible through insurance.
The growth of the insurance industry in our society has been built
upon the foundation of actuarial science, which relates the actuality
of the risk of loss of the matter being insured to the premium to
be paid. By identifying the value of the risk, actuarial science
ensures that the insured gets the insurance value of what he pays
for. Without this science, then insurance would be reduced to no
more than a scheme of blind gambles with unrelated payoffs.
In present society, there has been a clearly developed need to
provide for the long term care requirements of the elderly. With
improved medical care, people are living longer. Yet, attention
and care must be given to the aged who are no longer able to perform
all the tasks of daily living. It is anticipated that nearly half
of all people presently aged 65 and older will need care in a nursing
home at some time in their lives. Long term care policies, in various
forms, have been written to account for these needs.
Another general insurance interest has long been that of life insurance
protection, which accommodates the financial needs of others upon
the death of the insured. A virtually endless variety of life insurance
policies have been written. These policies have included the joint
life, last to die policy, which pays a benefit upon the second death
of two insureds, usually a husband and wife.
The vehicle of the joint life policy has been used to accommodate
estate planning requirements of the insureds upon the death of the
second insured. By allowing for the pre-payment of death benefits,
these policies are potentially used to provide for long term care
requirements of elderly couples. No policy, however, has heretofore
been provided which has combined specified long term care benefits
with a joint and last survivor life insurance product, and particularly
wherein the specified benefits are actuarially responsive to the
insureds' actual long term care requirements as well as their life
expectancies.
There is a need for an insurance product which provides for dual
long term care requirements, with joint life benefits upon the death
of the survivor, which is actuarially responsive to the particularized
long term health care expectations of dually insured parties as
well as their life expectancies. A new and unique means at arriving
at such a product is provided for herein.
SUMMARY OF THE INVENTION
Generally speaking, the present invention provides a new and unique
system for underwriting a combined, joint life and long term care
insurance policy which is actuarially responsive to the long term
care expectations as well as the life expectancies of the individuals
being insured. A comprehensive understanding of the full significance
and scope of this invention can be drawn from the following specification
and claims.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is Risk Exposure Sequencing flowchart, illustrating the
systemology by which expected benefits are calculated for any given
combination of insureds.
FIG. 2 is a chart illustrating the Present Risk Value Analysis
that is applied to a set of expected benefit entries generated by
the operation of Risk Exposure Sequencing of FIG. 1.
FIG. 3 shows the Joint Equal Age Risk Charting Methodology by which
expectation strings for various types of insureds are blended into
a Joint Equal Age Risk Chart.
FIG. 4 flowcharts the Age Differential Adjustment Methodology by
which age differential combinations are factored into the rate construction.
FIG. 5 is a table illustrating a sample Joint Equal Age Risk chart
that has been generated by the Joint Equal Age Risk Charting Methodology
of FIG. 3, valued in dollars per $1,000 of benefit offering, and
where a discount rate of 9% has been applied.
FIG. 6 is a table illustrating a sample Age Differential Adjustment
Chart that has been generated by the application of the Age Differential
Adjustment Methodology of FIG. 3.
FIG. 7A is a table showing individual risk expectation strings
for a 35 year old male smoker.
FIG. 7B is a table showing individual risk expectation strings
for a 50 year old female non-smoker.
DESCRIPTION OF THE PREFERRED EMBODIMENT
For the purposes of promoting an understanding of the principles
of the invention, reference will now be made to the embodiment illustrated
in the drawings and specific language will be used to describe the
same. It will nevertheless be understood that no limitation of the
scope of the invention is thereby intended, such alterations and
further modifications in the illustrated device, and such further
applications of the principles of the invention as illustrated therein
being contemplated as would normally occur to one skilled in the
art to which the invention relates.
Actuarially, each single insured may be viewed as a series of future
annual expectations of benefit payment. Thus, for a single premium,
single life, insurance policy, a typical actuarial analysis might
look to the sum of this future expectation string to form a rate
basis for that insured. Since the expectation string of a particular
insured will vary depending upon age, sex, and smoker status, an
independent analysis can be conducted for each such possible categorization
to yield a rate chart. Thus, for example, a rate chart for a single
premium, single life, insurance policy, for insureds between 30
and 70, might include a table of 120 separately defined rates, one
for each possible variant combination of age, sex, and smoking status.
Such a rate chart is easily manageable as a basis for making a policy
offering.
The above type of analysis, however, does not lend itself to the
complexities of multiple life policies, and particularly fails where,
as in the present case, a policy is to be combined with both joint
life and joint long term care protection, and where such a policy
is to be truly actuarially responsive to actually expected long
term care demands, as well as to the life expectancies of the insureds.
To give some appreciation to the significance of the problem at
hand, consider the fact that, for such a policy, there would be
multiple independencies, not only for age, sex, and smoking classification,
but also for the independent future benefit expectation strings
for life expectancy and for long term care. The martrix needed to
contain the full charting of all such possible independent combinations,
over a range of just 40 years, would require in excess of 2.times.10.sup.8
cell locations. The impracticality of such a rate structuring should
be evident.
A new and unique system for underwriting such a combined, joint
life and long term care insurance policy which is actuarially responsive
to long term care demands, and which forms the basis for the present
application, will now be taught. As described herein, the present
invention is utilized to form the basis for calculating the expected
value of the long term care claims for either insured and the last
to die death benefits of the surviving insured on an insurance contract,
with two insured lives and where specific limits on total benefits
are to be applied. In the course of the following description, reference
shall be made to FIGS. 1-6, which illustrate a flow charting of
the disclosed underwriting system, and may therefore enhance the
understanding of the invention being disclosed.
In constructing the risk charting which is to form the basis of
policy offering, lives in different categories are exposed to the
probability of long term care and/or last to die death benefit.
The long term care claim payments may be paid to either insured
at any time or both at the same time. In this sense, this applied
exposure is very different from a traditional last to die death
benefit because it can be paid to both insureds at the same time,
and where each insured is experiencing an independent risk of exposure.
Secondly, the last to die death benefit is, as its name implies,
an insurance contract which pays a death benefit upon the death
of the second of two insureds to die. The amount of the death benefit
which would be paid is dependent upon the amount of benefit which
has not already been paid because of prior long term care claims.
It is possible that upon the death of the second to die, there is
actually no death claim paid as all benefits had been paid through
the long term care portion of the policy. Therefore, it is possible
to pay a last to die death benefit in the range of 100% to 0% of
the initial benefit because of prior long term care benefit payments.
In accordance to the flow charting shown in FIG. 1, a Risk Exposure
Sequencing 100 routine calculates the expected benefits for any
given combination of insureds (X and Y) When the policy is issued,
there are two insureds alive, each having their own particular string
of future risk expectations for 1) long term care P.sub.LTC [P.sub.1,
P.sub.2, P.sub.3. . . . ] and 2) life expectancy P.sub.LE [P.sub.1,
P.sub.2, P.sub.3. . . . ], which are dependent upon age, sex, and
smoking classification parameters. From this point, risk sequencing
is initiated.
Thus, Risk Exposure Sequencing 100 is initialized at Condition
Category: Both Insureds Alive 110. From this point, the policy is
exposed to the probability that both insureds will die during the
present year (Expose to Dual Death 111). Based upon the probability
expectation of this occurrence, an entry is made into Expected Benefit
Register 199. The remaining probability of non-occurrence then flows
through to the next occurrence exposure test in which the insured
are exposed to the probability that both will undergo long term
care claims during the year (Expose to Dual LTC 112). The probability
of such an occurrence produces an entry into Expected Benefit Register
199. Continuing, the remaining probability of non-occurrence then
flows through to the subsequent occurrence exposure tests: Expose
Y to LTC, X Alive without LTC 113, X to LTC, Y Alive without LTC
114, Expose Y to Death, X Alive without LTC 115, Expose X to Death,
Y Alive without LTC 116, Expose Y to Death, X to LTC 117, and Expose
X to Death, Y to LTC 118. For each such exposure test, the probability
of a positive such occurrence upon which a claim would be based,
will activate an entry of the probability of the occurrence into
Expected Benefit Register 199. Non-occurrence sequences the remaining
probability to subsequent risk occurrence tests, with the remaining
probability of non-occurrence of all such events being sequenced
to the subsequent year (Sequence Year 119).
Some positive risk exposures, in addition to triggering an expected
benefit entry into Expected Benefit Register 199, may also trigger
subsequent risk exposures and/or a change in the conditions under
which risk sequencing is to be applied. For instance, the positive
risk of dual long term care benefits (Box 112) is also applied against
the probability that either Y would die in the same year (Expose
Y to Death 121) or that X would die in the same year (Expose X to
death 122). The negative flow through probability after exposures
121 and 122 may then be sequenced to the subsequent year (Sequence
Year 123). The positive risk exposure at Expose Y to Death 121,
on the other hand, causes a change in the condition of risk sequencing
to Condition Category, Single Life Y 131, prior to sequencing to
the subsequent year (Sequence Year 132). The positive probability
resulting from these events may then be sequenced through a single
life probability routine whereby Y is exposed to death (Box 133)
and long term care (Box 134), prior to subsequent annual sequencing
(Box 132).
In the same way, the positive risk exposure at Expose X to Death
121 causes a change in condition for subsequent risk sequencing
to Condition Category, Single Life X 141, prior to sequencing to
the subsequent year (Sequence Year 142). The positive probability
resulting from this event may then be sequenced through a single
life probability routine whereby X is exposed to death (Box 143)
and long term care (Box 144), prior to subsequent annual sequencing
(Box 142).
It should be understood that, for a given combination of insureds,
having a given set of individual expectation strings, Risk Exposure
Sequencing 100 is applied to all possible probabilities. For each
exposure step, the positive probability of the occurrence flows
through to subsequent steps resulting that positive occurrence,
and the negative probability of the non-occurrence flows through
to the steps resulting from the negative occurrence. In this way,
all possible probability results are accounted for to result in
the Expected Benefit Register holding the information of the probabilities
of all possibly expected claims against the policy.
Referring now to FIG. 2, Present Risk Value Analysis 200 operates
upon a set of expected benefit entries generated by the operation
of Risk Exposure Sequencing 100 routine of FIG. 1 for a given pair
of insureds. By the operation of Present Risk Value Analysis 200,
a Present Risk Value may be generated at Present Risk Value Register
299 for any particular combination of insureds. Describing this
routine, each expected benefit entry for a given risk exposure sequence
application, is operated upon in the following manner: First, an
expected benefit entry is drawn (Box 201), and categorized by whether
it specifies a death benefit or an LTC claim (Box 202). If an LTC
benefit is to be paid, the value of the claim is determined (Box
203), and compared against the benefit limitations of the policy
(Box 204). If the benefit limitations do not apply, then the claim
is paid and deducted from the remaining benefit available (Box 205),
and the claim is then discounted to its present risk value at the
issue date of the policy (Box 206). The discounted claim is then
added (Box 207) to the Present Risk Value Register 299, by which
the overall risk value of the policy to be offered is tabulated
for the insured combination being analyzed. Where the expected benefit
entry, on the other hand, is a death benefit, then the remaining
benefit is paid (Box 212), and discounted to its present value at
issue date (Box 213). The discounted benefit is then added (Box
214) to the Present Risk Value Register 299.
After a particular expected benefit entry has been operated upon
to generate an entry into Present Risk Value Register 299, (through
either steps 202-207, or 212-214), then the process is stepped to
the next expected benefit entry to be processed (Box 221). If expected
benefits generated for a given year by Risk Exposure Sequencing
100 have not been exhausted, then the next such expected benefit
entry is drawn (Box 201), and the same set of operations are applied
to this subsequent benefit entry. If all expected benefit entries
have been exhausted for a given year, then the year is sequenced
(Box 222), the available benefits are adjusted to account for the
passage of the year (Box 223), and the described operations are
then applied to the expected benefit entries for that subsequent
year (Boxes 201 et seq.).
In combination, the above described Risk Exposure Sequencing 100
and Present Risk Value Analysis 200 routines generate a present
risk value for any particular combination of insureds. When considering
the massive amounts of data upon which these routines are operable,
and the extent of sequencing necessary to create just one such present
risk value, one can readily appreciate that an actuarially responsive
insurance product could not be feasibly founded upon the simple
application of these routines alone. The methodology into which
these routines have been incorporated into the underwriting system
of the present invention to produce a feasible insurance product
that is actuarially responsive to long term care and life expectancy
demands will now be described.
FIG. 3 shows the Joint Equal Age Risk Charting Methodology 300
by which expectation strings for various types of insureds are blended
into a Joint Equal Age Risk Chart 399. In this process, all risk
expectation strings are first blended into one of four Joint Equal
Age Risk Classifications: Class I, which includes two non-smoking
females, two females (one smoking), and a male and female (both
non-smoking) (Box 301); Class II, which includes a male and female
(one smoking), two non-smoking males, and two smoking females (Box
302); Class III, which includes two males (one smokes), and a male
and female (both smokes) (Box 303), and Class IV, which includes
two smoking males (Box 304).
By this blending process, the risk expectation strings for individual
subcategories within a given Joint Equal Age Classification are
averaged to yield a set of blended risk expectation strings for
that Classification. The blended risk expectation strings are then
operated upon by Risk Exposure Sequencing 100 and Present Risk Value
Analysis 200 to generate Joint Equal Age Risk Chart 399. As an alternative
method of approximation, Risk Exposure Sequencing 100 and Present
Risk Value Analysis 200 could be applied to unblended risk expectation
strings of joint equal age, with the resultant set of present risk
values being blended, or averaged, to generate a joint equal age
present risk value for that given Classification and issue age.
FIG. 4 flowcharts the Age Differential Adjustment Methodology 400
by which age differential combinations are factored into the rate
construction. As shown in FIG. 4, four distinctly separate classification
structures are created for the construction of Age Differential
Chart 499: Age Differential Class 1 (Box 401), where the insureds
are two males; Age Differential Class 2 (Box 402), where the insureds
are a male/female combination with the older insured being the male;
Age Differential Class 3 (Box 403), where the insureds are a male/female
combination with the older insured being the female; and Age Differential
Class 4 (Box 404), where the insureds are two females.
The following steps are then performed to operate upon the four
Age Differential Classes (ADC) to construct an Age Differential
Adjustment Chart 499 which forms the basis for modification of rates
based upon Joint Equal Age Chart 399 to account for the situation
where the two insured are not of the same age. The steps involve
several reiterative loop sequences:
The first and second primary loops are 1) for each age differential
class (ADC) (Box 411) and for each age differential (.DELTA.) (Box
412). For each combination of ADC and .DELTA., the following steps
are performed:
As a tertiary loop, operative steps are performed for each age
differential subclass (Box 413): Joint equal age present risk values
(JEA) are calculated for all issue ages (Box 414), accessing both
Risk Exposure Sequencing 100 and Present Risk Value Analysis 200
in the process. Then, Risk Exposure Sequencing 100 and Present Risk
Value Analysis 200 are also accessed to calculate (Box 416) age
differential present risk values (ADF[x,x-.DELTA.]) for each older
issue age (x).
The calculated age differential present risk value (ADF[x,x-.DELTA.])
is then compared with the joint equal age present risk values for
the same ADC, .DELTA., ADC sub-class, and the crossover point is
selected where where ADF [x,x-.DELTA.]<JEA[(i-1)] and ADF[x,x-.DELTA.]>JEA[i]
(Box 417). The determined crossover point differential (x-i) is
then inputted (Box 418) into a Temporary Age Equivalence Matrix
(Box 450). To complete the Temporary Age Equivalence Matrix (Box
450), the age differential present risk value calculation and ADF-JEA
comparison and inputting of crossover point (Boxes 415-418) are
reiterated for all issue ages (x) (Box 419); and the entire step
comparison process (Boxes 413-420), is reiterated for all age differential
subclasses within a given ADC and .DELTA. (Box 420).
Once the Temporary Age Equivalence Matrix 450 is completed, the
completed Temporary Age Equivalence Matrix 450 for a given ADC and
.DELTA. is analyzed to select an age differential adjustment factor
for said ADC and .DELTA. (Box 421), and the selected age differential
adjustment factor is inputted (Box 422) into Age Differential Adjustment
Chart. 499. Age differential adjustment factor selection may be
suitably based upon a dermination of the mean, median, mode, minimum
or maximum functions of the data that composes Temporary Age Equivalence
Matrix 450. In the example given, the minimum function has been
used to approximate an appropriate age differential adjustment.
Once the age differential factor for a particular ADC and .DELTA.
has been inputted, then the Temprorary Age Equivalence Matrix is
cleared (Box 423), and .DELTA. is incremented (Box 424) to the next
age differential for reiteration of steps 412-423. When age differential
factors have been calculated and inputted into Age Differential
Adjustment Chart 499 for all age differentials .DELTA. within an
Age Differential Class ADC, then the ADC is incremented (Box 425)
to the next ADC for reiteration of the complete process of steps
411-425. In this way, a complete Age Differential Adjustment Chart
499 is generated. Joint Equal Age Chart 399 and Age Differential
Adjustment Chart 499 are then used, in combination, to form the
basis for rate structuring of an insurance product covering joint
long term care and life benefits.
The combined use of Joint Equal Age Chart 399 and Age Differential
Adjustment Chart 499 for rate structuring should be readily apparent.
For any two insureds (X,Y), each would be categorized by age, sex,
and smoking status (i.e. X: 60 years old, male, smoker; Y: 54 years
old, female, smoker). By their combined Joint Equal Age Risk Classification
status (Classification III, male/female (both smoke)), a Joint Equal
Age Present Risk Value may be drawn from Joint Equal Age Chart 399
for the age category of the older of the two insured (age: 60; JEA:
xxx). An adjustment is then made to account for the age differential
of the two insured which is based upon the a separately and independently
defined Age Differential Classification (ADC 2: male/female, male
older; age differential .DELTA.=6; age differential adjustment factor=2).
Based upon this age differential adjustmetn fact (2), the reading
from Joint Equal Age Chart 399 is reduced by two from JEA=60 to
JEA=58, and the present risk value for JEA=58 (xxx) is then used
as the bais for rate structuring of this particular combination
of insureds.
In this way, it can be seen that an extraordinarily complex problem
in the filed of actuarial science has been reduced to a simple solution.
Moreover, the solution present is not only to be appreciated for
its simplicity, but also in the unique manner in which the integrity
of actuarial responsiveness to both the individualized long term
care demands and life expectancies of the two insured parties has
been maintained.
While the invention has been illustrated and described in detail
in the drawings and foregoing description, the same is to be considered
as illustrative and not restrictive in character, it being understood
that only the preferred embodiment has been shown and described
and that all changes and modifications that come within the spirit
of the invention are desired to be protected. |