Implications of Unisex Assumptions in the Analysis of Longevity for Insurance Portfolios in Indonesia

Abstract

Unisex pricing in insurance policies eliminates the use of gender as a rating factor, and it is increasingly implemented by insurance companies around the world during the last decade. Also known as “gender-neutral” pricing, unisex pricing ensures that insurance premiums for man and woman with the same risk characteristics is the same. This change in pricing method drives us to look into the mortality rate calculations as it is well known that the experience of mortality differs between men and women. This study focuses on longevity risks; therefore, it focuses on the mortality experience in the elderly. This study replicates “Implications of Unisex Assumptions in the Analysis of Longevity for Insurance Portfolios” written by Ornelas et al. using Indonesia’s population data. Five possible scenarios of gender proportion in a portfolio were created and analyzed on the effect of gender proportion on quantifying longevity risks. This study uses Weibull distribution and Value at Risk to quantify the longevity risks. This study found that longevity risk is larger when the number of female policyholders is increased in the gender proportion of a portfolio. Through the findings, we recommend an insurance company in Indonesia to calculate the gender proportion in a portfolio accurately, or they may face a large loss.