Seminar by Dr Sachi Purcal
- Topic: Microinsurance Pricing under the Microscope: Findings from the Philippines
- Speaker: Dr Sachi Purcal, Senior Lecturer, Department of Applied Finance & Actuarial Studies, Macquarie University
- Venue:E4A 623
- When: 12th April, 2013, (Fri)
- Time: 11.30am - 12.30pm (Morning Tea from 11am)
Microinsurance has considerable potential in addressing issues such as poverty alleviation and social protection in less developed countries. From an actuarial perspective it faces a distinct set of challenges due to tradeoffs between economic and social objectives such as financial sustainability and outreach. This paper investigates the characteristics of microinsurance using empirical evidence from the Philippines, covering a microinsurance scheme between 2003 and 2011. Individual short-term microinsurance is found to be feasible with no evidence of high claim rates. Major actuarial challenges are high lapse rates, adverse selection contingent on duration, and covariate-specifi c risk factors. Accurate pricing is required to support sustainability and outreach. Traditional simple actuarial pricing of microinsurance is found to be inadequate given this evidence. A simple duration-oriented multi-state model based on continuous-time Markov chains is proposed for valuation. Target population-specifi c transition probabilities are derived empirically with the Aalen-Johansen estimator. The model is applied and yields lower and actuarially fair premiums.