Hi Guys, this is on reserving for IP policy where policyholder is - healthy - sick in DP but haven't inform insurer - sick in DP with insurer informed - sick and claiming the solution for the later 3 scenarios will always involve calculating additional reserves on top of the healthy scenario, why? I'm confused. Thanks!
You should generally use as much relevant information as you can to come up with the best reserve figure that you can. We could just hold the same reserve for each policyholder, but that wouldn't be using all the information that we have on them. For example, we can use information on things like benefit size to give a more accurate expected claim amount (and hence reserve). Equally, we can use information on whether they are currently claiming (or are more likely to claim in the near future) to refine our reserve calculation. We expect to pay out more on average for someone who is currently sick and claiming than for someone who is currently healthy, so let's reserve for that!
Reserves are money you hold now for future payouts (more or less). Surely you'd hold more for someone that is already sick!
thanks charlie, i was thinking if something should be released from the healthy reserves since i now have more clarity on ph's state of health instead of just stacking the full estimate on, it feels like i had not anticipated anything at all.