Risk Classification/Life

This article gives an overview of the main models used to represent heterogeneity in life insurance. We focus in particular on two classes of models: individual models, which are suitable to represent heterogeneity aspects that are observable at the issue of an insurance; and collective models, which are suitable to assess heterogeneity due to unobservable risk factors. The adoption of (at least some) individual models is common practice in life insurance, in particular for pricing or, more generally, for risk management. On the other hand, collective models are used for certain mortality investigations, in particular for suggesting an appropriate description of the age-specific mortality shape in some insured portfolios.