13 - Data and assumption setting Flashcards
What are the key components of a robust data capturing process for actuarial functions?
- Capture detailed claims and policy data
- Capture complete beneficiary and dependant information for retirement funds
- Ensure consistent data capture across systems
- Consider risk characteristics
- Ensure the ability to model and project data
What are the primary sources of data for actuarial work?
- The benefit provider’s own data (including wearable/device data)
- Population data provided by the government
- Reinsurer’s data
What general data considerations are important when offering insurance?
Data availability, relevance, and credibility. The estimation of the cost of claims for the future period should be as accurate as possible.
What factors should an actuary consider when using past data to set assumptions?
- Abnormal fluctuations
- Changes of experience with time
- Changes in data recording
- Potential errors
- Changes in homogeneous groups
- Heterogeneity within groups
How do economic conditions affect data?
Economic data will fluctuate with changes in:
* Economic and fiscal policy
* Investment returns
* Salary levels
* Government bond yields
How should an actuary deal with changes in taxation?
Investment returns could perhaps be adjusted to allow for changes in the levels of taxation that apply to those returns.
What considerations are required when carrying out actuarial functions related to pricing, reserving, or conducting valuations?
The actuary needs to make assumptions about:
* Claim incidence rates
* Claim termination rates
* Average claim size
* Mortality and withdrawal rates
* Yields to maturity on government bonds
* Inflation risk premiums
* Estimates of future risk premiums
* Salary and pension increases
* Contributions or premiums
* Expenses
What should the database for premium estimation include in health and care insurance?
All available information from the local market on trends and developments in order to project the experience forward for the product’s lifetime.
How will claim incidence rates vary?
Claim incidence rates will vary by several underlying factors, two of which may be age and by calendar year.
What are the two main deterministic methods for projecting mortality into the future?
- Process-based methods
- Extrapolative methods
What factors affect the amount to be paid out in benefits?
- Benefit structure and/or policy conditions
- Approach to underwriting and/or acceptance
- Claims management
- Distribution method and channels
- Target market
What are the drawbacks of national statistics?
- The accuracy and reliability of the national statistics may be questionable
- The population experience may be somewhat out of date before it becomes published
- The national experience may not be particularly relevant to a benefit provider’s subset of lives
How does splitting population data by socio-economic group and region improve the relevance of population data?
The insured or covered population is likely to behave differently to the uninsured or uncovered population.
How can supervisory returns be used to produce broad estimates of claim experience rates for PMI policies?
The information within these returns can provide a high-level check on premiums produced from other sources.
How to estimate future claim experience using overseas data?
{overseas industry morbidity rates} x {home population morbidity rates} / {overseas population morbidity rates}
What are the three forms of out-of-pocket medical expenditure in health and care benefit provision, specifically when offering PMI?
- Payment of invoiced medical services by users of commercial health insurance products
- Payments by those who do not have any commercial health insurance products
- Payments for medical services that are not invoiced
What kind of data checks and validation is required for health and care insurance?
The accuracy of policy and claims data is a major risk for any insurer.
What are some examples of member data and data checks?
Membership data at current and previous valuation date including:
* Date of birth
* Sex
* Salary/pension information
* Normal retirement date
* Current contribution rates split by employer and employee contributions
What should policy or member records be checked for?
Policy or member records should be checked ‘end to end’; that is all the way through the data process from input to eventual use, particularly if the data is passed between several systems and/or manual processes.
What documents are useful for asset validation?
Audited accounts, investment management reports, and consistency between investment income and the assets actually held.
What is important to consider in all actuarial work when setting assumptions?
- Consider the use to which the assumptions will be put
- Take particular care over the choice of the assumptions that will have the most financial significance
- Achieve consistency between the various assumptions
- Consider any legislative or regulatory constraints
- Ensure that the data used to derive these assumptions are relevant to the risks that the policies encompass
What is the guiding principle in creating a valid basis for assumptions?
The principle of consistency. Consistency means ensuring that a realistic allowance is made for the way that variables behave together.
What steps are involved in deriving assumptions for future experience?
- Investigate the historical experience
- Consider the conditions in the future period
- Determine what the best estimates of the assumptions will be
What different terms do actuaries use for describing the actuarial basis strength?
- Best-estimate basis
- Optimistic or weak basis
- Cautious, conservative, or strong basis
- Prudent basis
How does an increase in any economic assumption affect the projection for the liability outgo?
An increase in any economic assumption for projecting the liability outgo, for example, pension increases, will increase the value of the liabilities.
What are demographic assumptions in the context of benefit arrangements?
- Morbidity
- PMI incidence rates
- CI incidence rates
- Long-term care transition probabilities
- Rates of ill-health retirement
- Other claim inception rates
What does the expected future experience depend on?
- The target market for the benefit
- The distribution channel involved
- The underwriting controls applied
- The claim controls applied and the benefit provision wording
What is an example of market data, in particular insured lives data?
Using standard table rates.
What factors are typically split for long-term health and care insurance products?
- Age
- gender
- Smoker status
- Occupation
- Size of benefit selected
- Type of benefit selected
- Class of product
- Individual or group
- Region
What adjustments have to be taken into account when projecting claim amounts for PMI policies?
Adjustments will have to be made, as discussed above, in order to produce rates that are relevant to the benefit provider, its benefit offerings, and the timeframe for which they are to be offered.
What social and economic influences affect the propensity of an individual to claim under a benefit arrangement?
- Changing attitudes to health
- Greater access to healthcare services
- Better diagnosis of medical conditions
- The availability of new medical technology
- The future plans for state welfare provision
- The economic well-being of the country
- Inflation
How does high inflation impact the renewal price of PMI?
High inflation will impact the renewal price of PMI and is likely to reduce renewal rates or result in policyholders choosing lower benefit levels.
What should mortality rates be taken from?
Mortality rates should be taken from the recent experience of a credible body of policyholders for the same contract.
What is the ‘survivorship requirement’ for stand-alone CI insurance?
The CI ‘survivorship requirement’ is the policy condition that requires a policyholder to survive for a specified period of time, for example, 28 days, following the date of disease diagnosis, in order for a claim to be valid.
What factors affect the ongoing desirability of having insurance?
- The level of premium or contribution increase
- The perceived service delivery within any state-provided alternative
- The length of waiting lists, etc.
- The current confidence in the state provision
What economic factors influence the policyholders’ decisions to lapse?
Can the person continue to afford the premium or contribution?
What state benefits are offered as an alternative? Is there a better or cheaper competitor’s product? Is there a belief that the policy is necessary?
What are the financial assumptions that may be required for a particular application?
- Benefit amount
- Benefit inflation
- Expenses
- Expense inflation
- Commission and clawback
- Investment return
- Taxes
What factors relate to the size of the reserves built up?
The larger the reserves relative to cashflows, the greater the proportion of total cashflow and profit, that arises from investment income, and hence the greater will be the sensitivity to changes in the investment return.
What are the features that can make a product design riskier?
- Lack of historical data
- High guarantees
- Policyholder options
- Overhead costs
- Complexity of design
- Untested market
