21 - Mortality and morbidity

Question 1

When is it appropriate to set the premium rates for a risk individually per contract rather than grouping contracts together?

Answer 1

When risks are rare and large and are not similar to each other.

Question 2

Give an example of a type of cover that cannot use grouping of homogeneous risks.

Answer 2

Marine hull cover - ships, routes and cargo are all different from ship to ship

Question 3

If the individual assessment of risks leads to more accurate premium rates, why is it not generally used in practice?

Answer 3

The investigations that are required to set individual premium rates are too expensive and time consuming to be profitable for most lines of business.

Question 4

What are the requirements in order to pool lives for premium setting?

Answer 4

1. Independent lives and,

2. Homogenous risks

Question 5

What is the name of the process of separating contracts into different homogeneous groups for premium rating purposes?

Answer 5

Risk classification

Question 6

Briefly describe the process of risk classification.

Answer 6

Identifying risk factors specific to an individual that might influence the likely risk of that individual.

Question 7

Define anti-selection.

Answer 7

The process of taking advantage of inefficiencies in a provider’s pricing basis to secure better terms than might otherwise be justified.

Question 8

Give the limits to using risk grouping.

Answer 8

Theoretically should add further rating factors until the differences in risk between the current set of factors and adding another is negligible, however
It is practically done until marginal benefit is less than marginal costs with regards to costs of collecting information and how accurate the responses are.

Question 9

Give a non-actuarial limiting factor to the process of risk classification.

Answer 9

Marketing would like to meet the client desire to have a straightforward and quick underwriting process.

Question 10

Give a reason why mortality tables are constructed under the assumption of a homogeneous group of lives.

Answer 10

If it were constructed based on a heterogeneous group of lives then the use of the table would depend on the mix of lives to which it applies as well.

Question 11

Describe the principle of mortality convergence.

Answer 11

Mortality variation decreases as lives get older and risk factors have less of an effect on individual lives.

Question 12

How do decrements other than mortality affect mortality and morbidity.

Answer 12

Certain decrements have a selective effect on a life, such as ill health retirement is normally indicative of increased mortality

Question 13

List the principle factors that contribute to variations in mortality and morbidity.

Answer 13

1. Occupation
2. Nutrition
3. Housing
4. Climate / geography
5. Education
6. Genetics
   7 HIV / AIDS

Question 14

Give three additional concerns around occupation as a risk factor.

Answer 14

1. Previous occupation
2. Classification
3. Lack of statistics for certain occupations

Question 15

List three additional concerns around climate and geographical location as a risk factor.

Answer 15

1. Access to medical facilities and transport
2. Road accidents
3. Natural disaster risks
4. Political / civil unrest

Question 16

List the types of selection involved in risk classification.

Answer 16

1. Temporary initial selection
2. Class selection
3. Time selection
4. Adverse selection
5. Spurious selection

Question 17

Define temporary initial selection

Answer 17

The level of risk diminishes or increases since the occurrence of the initial selection process

Question 18

Define class selection

Answer 18

A select group is taken from a population consisting of a mixture of different types of individuals with different characteristics

Question 19

Define time selection

Answer 19

A select group is taken from a population of individuals from different calendar years

Question 20

Adverse selection

Answer 20

Individual’s own choices influence the composition of a select group.

Question 21

Spurious selection

Answer 21

The distorting effect of a confounding factor gives the false impression that one of the other forms of selection is present.