Statistical Modeling of a Benevolent Scheme

Abstract

The area of study is on a Benevolent Scheme. Herethe insured contributes premiums to the insuring company and is compensated in the event of death of self or his or her dependant(s). The problem normally experienced by a number of insuring companies is how to determine the appropriate premium size to be paid by the insured. such that the company does not incur losses. In this study statistical models of a one-dependant and an m dependant scheme, have been formulated. Using the formulated models, the expected expenditure and consequently profits or loses accrued to the insuring company have been calculated. Consequently the appropriate premium size that will givethe insurer modest profit has been determined. Properties of Markov chains and Markov states have been applied in determining the probabilities of transition from one state to another, in n-steps (years). Steady state transition probabilities have also been derived. Finally, correlation of the Exponential probability distribution with the benevolent scheme modelhas been established