Allocation of benefits in mutual aid and survivor funds
(2022) , 32 pages
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- Abstract
- Consider a group of individuals contributing in advance (ex ante) a fixed amount to a pool constituted over a reference period to mutually protect against the financial consequences of the occurrence of a predefined event such as death, survival or being diagnosed with a critical illness for instance. They agree that the sum of the contributions is shared in arrear (ex post) among those participants having experienced the predefined event. The allocation can be uniform among claiming participants, each one receiving an equal share of total contributions, or participants may be offered the choice to select in advance an expected amount of benefit, corresponding to their desired protection level. As an application, the paper considers mutual aid funds and survivor funds. The proposed systems are fully funded since contributions are paid in advance. The benefits in case the event occurs are therefore random but the volatility of the terminal payouts turns out to be limited when the number of participants gets large enough. Insurance at fair price is recovered at the limit, within infinitely large pools. The link with takaful insurance is discussed, as well as minimum guar- antees to make the system more attractive.
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Citations
Denuit, M., & Robert, C. Y. (2022). Allocation of benefits in mutual aid and survivor funds (LIDAM Discussion Paper ISBA 2022/29). https://hdl.handle.net/2078.5/102223